I'll have a crack but is a few years since I ve been involved in...

I'll have a crack but is a few years since I ve been involved in this stuff.

Basically it is a choice of the discount rate to value the stream of earnings from your company or companies. Or Interest rate if you like.

So you take all the set up costs, all the annual operating costs, all the projected annual revenue streams and put them into your excel spreadsheet on an annual basis.
These are real costs and revenue, ignoring the effect of inflation.
At the end of 20-30 years of the assumed life of the project you have a bunch of annual profits. (or losses)
You then choose a discount rate to discount this net profit back to a current value.
Its like having a $100,000 grand and you stick it in the bank at 5% annual interest.
Are you better off sticking that $100,000 in VRX?
In theory if you have a whole bunch of projects and you assume a say 10% discount rate, you can then rank all projects based on their Net Present Value and you would invest in the one with the highest NPV or values.

Its arcane. As you can deduce you can alter the discount rate, you are making assumptions about cost flows and revenue flows but it has its uses.

For example if the $28m to set up the plant is out by say a factor of 100% then your NPV of the profit stream will fall, all other stuff remaining the same.

Its a tool to play with sensitivity analysis, or what if, eg if the exchange rate changes, if freight costs change, if the world price of silica drops through the floor.

Hope this helps
Cheers
Rossco