Categories of Cash Flows.

The expenses and receipts due to engineering projects usually fall into one of the following categories.

First cost = expense to build or to buy and install

Operations and maintenance (O&M) = annual expense, such as electricity, labor, and minor repairs

Salvage value = receipt at project termination for sale or transfer of the equipment (can
be a salvage cost)

Revenues = annual receipts due to sale of products or services

Overhaul = major capital expenditure that occurs during the asset's life

Individual projects will often have specific costs, revenues, or user benefits. For example, annual operations and maintenance (O&M) expenses on an assembly line might be divided into direct labor, power, and other. Similarly, a public-sector dam project might have its annual benefits divided into flood control, agricultural irrigation, and recreation.


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