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2.6.2.4
Annual Capital Charge


         Finally there is a technique known as the Annual Capital Charge

which works on slightly different principles and is applicable when

the annual cash flows are likely to be constant. This is a feature

which may apply in the case of churches. Based on the evidence collected

at Thwaites Brow it would seem that newness of the building is only one

factor among many which affects church attendance. The technique,

briefly explained, is that any asset, e.g. a church, depreciates to nil

value over a period of time and that if it is to then be replaced an

adequate annual sum must be set aside. If that annual sum, found by

solving for N in the formula
N =
C
r
(1+r)
n
(1+r)
n
-1
is less than the cash flows being received then the project is viable,

if greater, then it is not. This technique would seem to have applica-

tions in parishes with stable populations.

         All the above, it must be stressed, is but a very brief introduc-

tion to a field which will need closer enquiry if it is to be applied

in practice. The reader interested in considering it more deeply would

find useful the more detailed exposition in Merret and Sykes', "The

Finance and Analysis of Capital Projects"
(B21)
. This section seeks only

to go so far as suggesting that by not employing such techniques more

fully the Diocese is at least being inefficient and possibly losing

financially. The idea can be exemplified by studying a brief case

history.

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