Cash flow is the estimation of inflows (revenues) and outflows (costs) of an investment. In the current project the investment is a hydrogen filling station, which features on site production of hydrogen. Net discounted cash flow is a method of evaluating an investment by estimating future cash flows and taking into consideration the time value of money. These estimations have been done for 20 years and certain assumptions need to be made in order to continue calculations.
First of all, the production cost of hydrogen is calculated (0.0215 £/lt) as well as the annual production of compressed hydrogen (40,332,500 litters) at 200 bar for this station. Moreover, the first year statement about the selling price of hydrogen is made (0.030 £/lt) following a gradual increase of 2% every five years for a pre-determined period of twenty years. These numbers and assorted incomes, which will come up every year in order to complete the first evaluation of the investment, need to be evaluated. A sensitivity analysis must be performed in order to identify the most realistic economic indicators.
The follow table presents the equations used to work out the final cash flow.

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The tax is a fee charged by the UK government on incomes of investment. In the current case it counts for 40%. Net Present Value criterion is an important assessment, which calculates the current value of a future cash flow. Net Present Value is a very useful tool for comparing current costs to undertake a project versus the potentials benefits; in this case revenues, that the investment will yield sometime in the future. The formula for calculating Net Present Value (NPV) is:

NPV=-I + Σⁿ CF_n/(1+ i)ⁿ

Where: I = initial investment or capital costs, CF_n = cash flow in year n, i = discount rate, n = time horizon of the investment.

It is obvious the Net Present Value of investment depends on the rate of discount used. A 10% discount rate is used for 20 years of investment. The criterion, applied, denotes that if the Net Present Value is greater than 0; then the current value of the cash flow generated by the investment is positive. According to the Cash Flow evaluation the investment is considered profitable, because the Net present value is £ 2,407,000.

The Interest Rate of Return is about as close as it can get to the Net Present Value without actually being the Net Present Value. The basic rationale behind the Interest Rate of Return is that it tries to find a single number that summarises the merits of an investment.
The Interest Rate of Return may also be described as the rate of growth of an investment. The Interest Rate of Return method can also be used to make correct investment choices, provided the cost of money is the same in all future time periods. This method in fact leads to the same choice as the net present value method. Both methods were used in order to be sure that the right choice was made.
Furthermore, if the Interest Rate of Return is greater than the discount rate then the investment is acceptable. For this investment, the Interest Rate of Return is taken equal to 15% and the discount rate comes to 10%; therefore the investment is acceptable.

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