The third edition of “Methods and Parameters” covers revisions to the knowledge points of Subjects 4 and 5

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The third edition of “Methods and Parameters” includes revisions to the knowledge points related to Subjects 4 and 5. “Parameters and Methods” (third edition) also contains certain revisions.

**Subject 4: Project Decision Analysis and Evaluation**
- Investment estimation
- Project financing
- Financial evaluation
- National economic evaluation
- Uncertainty analysis
- Risk analysis

**Subject 5: Modern Consulting Methods and Practices**
- Investment estimation methods
- Cash flow analysis and financial evaluation
- National economic evaluation methods
- Economic comparison and selection of alternatives
- Risk probability analysis methods

**Knowledge points revised in investment estimation:**
I. Composition of total project investment
 ① Revisions:
  Original content: Total project investment = Construction investment (including interest during the construction period) + Working capital
  New content: Total project investment = Construction investment + Interest during the construction period + Working capital
 ② Revised tables:
  1. Construction investment estimation table (approximate method, asset formation method): The estimated amount does not include interest during the construction period.
  2. Total project investment estimation table: Interest during the construction period is not included in the construction investment; it is estimated separately.

II. Composition and classification methods of construction investment
 ① Revisions:
  Original content: Construction investment = Construction costs + Costs of purchasing equipment and tools + Installation costs + Other project-related expenses + Basic reserve fund + Price increase reserve fund + Interest during the construction period
  New content: Construction investment = Project costs + Other project-related expenses + Reserve funds
  Where, Project costs = Construction costs + Costs of purchasing equipment and tools + Installation costs
  Reserve funds = Basic reserve fund + Price increase reserve fund
  Classification: Construction investment can be classified into static investment and dynamic investment using the static/dynamic method (as stated in the textbook). According to “Parameters and Methods” (third edition), it can also be classified based on the way expenses are aggregated, using either the approximate method or the asset formation method.
 ② Revised tables: Construction investment estimation table (approximate method), Construction investment estimation table (asset formation method).

III. Estimation of working capital
 ① Revisions:
  Original content: Current assets = Accounts receivable + Inventory + Cash
  Current liabilities = Accounts payable
  New content: Current assets = Accounts receivable + Prepaid expenses + Inventory + Cash on hand
  Current liabilities = Accounts payable + Unearned revenues
 ② Revised table: Working capital estimation table.

**Subject 4, Chapter 5: Investment Estimation**
I. Scope and content of investment estimation (familiarize with)
Refer to page 74 of the second volume of the textbook: Content of construction investment estimation (does not include interest during the construction period); Classification of construction investment (approximate method, asset formation method, static/dynamic method).

II. Estimation of working capital (master)
Refer to page 84 of the second volume of the textbook: Current assets = Accounts receivable + Prepaid expenses + Inventory + Cash on hand; Current liabilities = Accounts payable + Unearned revenues.

III. Total project investment and phased investment plan (familiarize with)
Refer to page 87 of the second volume of the textbook: Total project investment is obtained by summing up construction investment, interest during the construction period, and working capital. Subject 5, Chapter 4: Methods of Investment Estimation
I. Classification Method for Construction Investment (Familiarization) – Page 367 of the lower volume of the textbook. Total project investment = Construction investment + Interest during the construction period + Working capital. The components of construction investment include: Project costs + Other costs related to project construction + Contingency funds. Classification methods for construction investment: (Classification by estimation method, classification by asset formation method). Construction investment (by estimation method) = Project costs (Construction costs + Costs of purchasing equipment and tools + Installation costs) + Other costs related to project construction + Contingency funds. Construction investment (by asset formation method) = Costs associated with the creation of fixed assets + Costs associated with the creation of intangible assets + Costs associated with the creation of other assets + Contingency funds. Tables for estimating construction investment (using estimation methods and asset formation methods).

II. Estimation of Working Capital – Page 374 of the lower volume of the textbook. Current assets = Accounts receivable + Prepaid expenses + Inventory + Cash on hand. Current liabilities = Accounts payable + Unearned revenues.

III. Total Project Investment and Assets Generated by It – Page 377 of the lower volume of the textbook. Tables for estimating construction investment, total project investment, plans for using the total project investment, and tables for funding arrangements. Project financing involves certain modifications to existing knowledge points, including the organizational forms of project financing, equity financing, debt financing, as well as the design and optimization of financing plans. Requirements outlined in the syllabus: Understand various financing models for investment projects and the credit guarantee structures involved in financing. Be familiar with equity financing and various debt financing methods. Master the content and methods related to the design and optimization of financing plans. The modifications in this section mainly relate to Chapter 6 of Subject 4, which deals with project financing.

Subject 4: Project Financing
I. Selection of Financing and Investment Models for Projects (Understanding) – Page 94 of the lower volume of the textbook. When formulating a financing plan, it is necessary first to determine the entity responsible for project financing. Factors to consider when identifying this entity include the scale of the project investment and industry characteristics, the relationship between the project and existing corporate assets and business operations, the financial condition of the existing corporation, and the project’s own profitability. Sources of funding for project financing: Existing corporate financing – internal financing by existing corporations, additional capital, and additional debt funds. Financing for newly established entities – capital contributed by the shareholders of the project company, and debt funds assumed by the project company. Comparison between financing through an existing legal entity and financing through a newly established legal entity: See Table 6-2 on page P96 of the second volume of the textbook, which compares the basic characteristics of these two financing methods.

| Item | Financing through an Existing Legal Entity | Financing through a Newly Established Legal Entity |
|------|------------------------------------------|--------------------------------------------------|
| Concept | The existing legal entity initiates the project, organizes the financing activities, and assumes the responsibilities and risks related to financing. | A new project company with independent legal status is established by the project initiator (an enterprise or another entity); this new company assumes the responsibilities and risks related to financing. |
| Sources of Funds | Internal financing by the existing legal entity; additional capital; additional debt funds. | Capital invested by the shareholders of the project company; debt funds assumed by the project company. |
| Debt Repayment | Repayment is based on the profitability of the entire existing legal entity, including the project in question. | Repayment is based on the profitability of the project itself. |
| Credit Basis | Debts are guaranteed by the assets and creditworthiness of the entire existing legal entity. | Financing is secured by the assets generated by the project, future earnings, or equity. |

II. Equity Financing (Familiarize yourself with this): See page P98 of the second volume of the textbook.
(1) Sources and methods of obtaining project capital: Depending on the characteristics of the entity responsible for project financing, different sources and methods can be used.
For projects using an existing legal entity: Additional capital can come from increased investments by existing shareholders, attracting new investors, issuing stocks, or investment from other entities.
For projects using a newly established legal entity: Equity financing can come from direct investments by shareholders, issuing stocks, or investment from other entities.
(2) Equity financing for projects using an existing legal entity (internal financing methods): See page P91 of the second volume of the textbook.
– Cash funds: Existing funds of the enterprise, as well as funds that can be obtained from future operations for use in the project.
– Realization of assets: Assets that can be converted into cash include current assets, long-term investments, and fixed assets.
– Realization of asset management rights: All or part of the management rights over the assets owned by the existing legal entity can be transferred.
– Use of non-cash assets: Non-cash assets of the existing legal entity (such as physical assets, industrial property rights, non-patented technologies, land use rights, etc.) can be used in project construction if they are suitable for that purpose, after an asset valuation has been conducted.
(3) Project capital (quasi-equity funds): See page P102 of the second volume of the textbook.
Principles for handling quasi-equity funds: Preferred stocks should be considered as part of the project capital in project evaluations. Convertible bonds should be considered as part of the project’s debt funds.

III. Debt Financing (Familiarize yourself with this): See page P103 of the second volume of the textbook.
Project debt funds can be raised through various channels and methods, such as bank loans, loans from policy banks, export credits, loans from foreign entities, loans from international financial institutions, syndicated loans, corporate bonds, international bonds, and financial leasing. Corporate bonds: At present, the total volume of corporate bond issuances in our country must be included within the **credit plan. Applying to issue corporate bonds requires strict approval, and a third party with strong financial strength must provide guarantees. Advantages of international bonds: large and stable amounts of funding, longer borrowing periods, and access to foreign exchange funds ； Disadvantages: Strict issuance conditions, high credit requirements, high financing costs, and complicated procedures. Due to its implications for balance of payments management, **strict regulation should be imposed on companies issuing international bonds. IV. Design and Optimization of Financing Plans (Mastered). As stated on P111 of Volume 2 of the textbook, after initially identifying the entity responsible for financing the project and its sources of funding, it is necessary to conduct a comprehensive analysis of the reliability of those funding sources, the rationality of the capital structure, the level of financing costs, and the extent of financing risks. By combining this analysis with financial assessments after financing is secured, an appropriate financing plan can be determined. (i) Analysis of the reliability of financing sources 1. The analysis of the reliability of internal financing by existing legal entities mainly includes: investigating the asset-liability structure, cash flow situation, and profitability of such enterprises, in order to assess their financial condition, as well as the amount of cash that can be raised for the proposed projects and the reliability of that cash ； Through investigations, the current asset structure of existing enterprises and its relevance to the proposed project are examined, and the amount of non-cash assets that the enterprises could utilize for the proposed project along with their reliability are analyzed. 2. The reliability analysis of project capital mainly includes: financing by existing legal entities – analyzing the amount of capital increases by existing shareholders and the investment brought in by new shareholders, as well as their reliability ； Financing for newly established entities – analyzing the amount of capital contributed by each investor and its reliability. When using these two financing methods, such as raising capital by issuing stocks, it is necessary to analyze the likelihood of obtaining approval. 3. The reliability analysis of project debt funds mainly includes the following: For projects financed through bonds – analyzing whether they can obtain approval from the relevant regulatory authorities; for projects financed through bank loans – analyzing whether they can get loan commitments from banks; for projects financed through foreign loans or loans from financial institutions – verifying whether the project is included in the list of projects eligible to receive foreign investment. ㈡. Analysis of the rationality of the capital structure 1. Contents include: Project equity capital and project debt funds; the internal structure of project equity capital; the internal structure of project debt funds. 2. The ratio between project equity capital and project debt funds should meet the following requirements: ① Comply with laws and administrative regulations; ② Meet the credit rules of financial institutions as well as the requirements of creditors regarding asset-liability ratios; ③ Meet the expectations of equity investors for returns on their investments; ④ Meet the requirements for preventing financial risks. 3. The structure of project equity capital should satisfy the following requirements: ① Determine the contribution ratios, forms, and timing of contributions by all investors through negotiation, taking into account their advantages in terms of capital, technology, and market development ； ②For projects that utilize existing corporate financing methods, it is necessary to reasonably determine the proportion of internal financing by the existing corporation and additional capital in the total project financing, while analyzing the feasibility and rationality of such internal financing and additional capital ； ③For domestic investment projects, it is necessary to analyze the legality and rationality of the controlling shareholder ； For foreign-invested projects, it is necessary to analyze the legality and rationality of the foreign party’s capital contribution ratio. 4. The debt financing structure of the project shall meet the following requirements: ① The proportion of various types of loans and bonds shall be determined reasonably based on the conditions set by the creditors for providing debt financing (such as interest rates, grace periods, repayment terms, and forms of collateral) ； ②Properly balance short-term and long-term loans ； ③Reasonably arrange the ratio between domestic and foreign debt ； ④Choose the appropriate foreign currency currency type ； ⑤Arrange the order of debt repayment reasonably ； ⑥Determine the interest rate structure reasonably. (III) Financing costs: Page 116 of Volume 2 of the textbook. Cost analysis should involve calculating the cost of equity capital, the cost of debt capital, and the weighted average cost of capital, in order to determine the actual cost associated with using various types of capital in a project and to assess whether such costs are reasonable; this provides a basis for optimizing the financing strategy. For the analysis of the cost of equity capital, the Capital Asset Pricing Model, the pre-tax debt cost plus risk premium approach, and the dividend growth model can be used; alternatively, the expected return rate of the investors or the return on equity of the existing enterprise can be employed directly. The cost of debt financing should be determined by analyzing various possible interest rate levels for debt financing, the methods of calculating interest rates (fixed rate, floating rate), the way interest is calculated (simple interest, compound interest) and the methods of making interest payments, as well as the grace period and repayment period, in order to calculate the overall interest rate on debt financing and make a comparison among different options. Based on the calculation of various debt and equity financing costs, the weighted average cost of capital for the entire financing plan is then determined. Financial evaluation involves modifications to certain concepts: methods for estimating operating revenue (operating revenue, business taxes and surcharges); methods for estimating costs and expenses (estimation of total costs and expenses); static indicators for evaluating a project’s financial profitability; dynamic analysis approaches for assessing a project’s financial profitability; indicators for evaluating debt repayment capacity (including the debt-to-asset ratio); and evaluations of a company’s financial viability (financial sustainability).

I. Estimation of Operating Revenue
(1) Modifications
Original content:
New content: Operating revenue, business taxes and surcharges.
(2) Modified table
Table for estimating operating revenue, business taxes and surcharges, and value-added tax.

II. Methods for Estimating Costs and Expenses
(a) Method of estimating production costs plus period expenses: Refer to Page 389 of Volume 2 of the textbook.
(1) Modifications
New formula: Total costs and expenses = Production costs + Period expenses. Here, period expenses = Administrative expenses + Operating expenses + Financial expenses.
(2) Modified table
Table for estimating total costs and expenses (using the method of production costs plus period expenses).

(b) Method of estimating production factors
(1) Modifications
Total costs and expenses = Cost of purchased raw materials, fuel, and power + Wages and benefits + Depreciation expenses + Amortization expenses + Repair costs + Financial expenses (interest payments) + Other expenses. “Other expenses” refer to the remaining amount after deducting depreciation expenses, amortization expenses, repair costs, wages and benefits from manufacturing expenses, administrative expenses, and operating expenses. ⑵III. Static Analysis Indicators for Evaluating the Financial Profitability of a Project A. Modifications 1. Static indicators for evaluating the financial profitability of a project: New indicators include return on total investment, net profit margin on project equity, and payback period. 2. Return on Total Investment (ROI): New formula provided (see Page 394 of the second volume). 3. Net Profit Margin on Project Equity (ROE): New formula provided (see Page 394 of the second volume). IV. Dynamic Analysis Levels of a Project’s Financial Profitability The book “Methods and Parameters” (third edition) states that the dynamic analysis of a project’s profitability after financing involves two levels: 1. Cash flow analysis using project equity – a cash flow statement is prepared from the perspective of the investors’ equity, and the internal rate of return is used to determine the level of returns that can be obtained from this equity. 2. Cash flow analysis of the various investors: From the perspective of the actual investments and expenditures made by each investor, the internal rate of return is used to assess the level of returns that can be obtained by them. V. Indicators for evaluating solvency – Changes to the indicators for assessing solvency: New indicators include the interest coverage ratio, debt service coverage ratio, asset-liability ratio, and loan repayment period. Asset-liability ratio: Appendix 1, Volume 2 of the textbook. VI. Evaluation of financial viability ㈠ Changes: Page 122 of “Methods and Parameters” (3rd edition) emphasizes that analyzing financial viability mainly involves two aspects: 1. Having sufficient net operating cash flow is a fundamental condition for financial sustainability, especially during the initial stages of operations ； 2. It is a necessary condition for financial sustainability that the cumulative surplus funds over the years do not turn negative. Throughout the operational period, negative net cash flows in individual years are allowed, but negative cumulative surplus funds in any given year are not permitted. (ii) Modify the table: Cash Flow Statement of the Financial Plan, Item 4, Chapter 7: Financial Evaluation. 1. Economic evaluation of construction projects, Textbook*, Volume 2, P125. 2. Estimation of financial benefits and costs (must be mastered), Textbook*, Volume 2, P134. 3. Analysis of financial profitability (must be mastered), Textbook*, Volume 2, P143, P146. 4. Analysis of financial viability (must be mastered), Textbook*, Volume 2, P149. Item 5, Chapter 5: Cash Flow Analysis and Financial Evaluation Methods. 1. Estimation of financial benefits and costs (must be mastered), Textbook*, Volume 2, P388: Methods for estimating operating income and cost expenses. 2. Financial evaluation methods (must be mastered), Textbook*, Volume 2, P394: 1) Static analysis indicators and criteria for evaluating them, such as total investment return rate and net profit rate on project equity; 2) Evaluation of debt repayment capacity, Textbook*, Volume 2, P402: Debt-to-asset ratio. Appendix 1: Two aspects of financial viability evaluation. National economic evaluation involves modified knowledge points; it covers three sections from “Methods and Parameters” (3rd edition): economic cost-benefit analysis, cost-effectiveness analysis, and analysis of regional and macroeconomic impacts. Among these, Chapter 6 of Item 5 deals with “economic cost-benefit analysis”, while Chapter 8 of Item 4 covers the three aforementioned sections. Key points related to national economic evaluation: The scope of application for national economic cost-benefit analysis; Principles for identifying national economic costs and benefits; Principles for calculating national economic costs; Principles for calculating national economic benefits; Calculation of shadow prices; Parameters for national economic evaluation; Methods for analyzing national economic cost-benefit flows (indicators for assessing profitability); Cost-effectiveness analysis; Analysis of regional and macroeconomic impacts. Chapter 8 of Subject 4: National Economic Evaluation – The scope of application for national economic cost-benefit analysis; Requirements for identifying national economic costs and benefits; Principles for calculating national economic costs; Principles for calculating national economic benefits; Calculation of shadow prices; Parameters for national economic evaluation; Cost-effectiveness analysis; Analysis of regional and macroeconomic impacts. I. Scope of application for national economic cost-benefit analysis: Page 176 of the second volume of the textbook, “Methods and Parameters” (3rd edition), further clarifies the scope of application: 1. Financial cash flows cannot fully and accurately reflect their economic value ； 2. Financial price distortions prevent an accurate reflection of the economic value generated by the project ； 3. Financial costs cannot accurately reflect the total resource consumption of a project ； 4. Projects whose financial benefits do not encompass all the economic effects of the project’s outputs. The following types of projects should undergo national economic evaluation: 1. Projects with monopoly characteristics; 2. Projects whose outputs have the characteristics of public goods; 3. Projects with significant external effects; 4. Resource development projects; 5. Projects related to economic security; 6. Projects subject to excessive administrative intervention.

II. Principles for identifying costs and benefits in the national economy (Page 179 of the textbook): 1. Adhere to the principle of comparison between “with” and “without” the project; 2. Conduct a comprehensive analysis of the costs and benefits for all members and groups affected by the project; 3. Properly identify positive and negative external effects to avoid miscalculation, omission, or double counting; 4. Determine appropriately the spatial scope and time frame of benefits and costs; 5. Correctly identify and adjust transfer payments, treating different situations differently.

III. Principles for calculating national economic benefits: 1. The Willingness to Pay (WTP) principle – used to calculate the positive effects of a project’s outputs, by analyzing the value that society’s members are willing to pay for the benefits generated by the project; 2. The Willingness to Accept Compensation principle – used to calculate the negative effects of a project’s outputs, by analyzing the value that society’s members are willing to accept in order to compensate for such adverse effects.

IV. Principles for calculating national economic costs: The opportunity cost principle – used to analyze the opportunity cost of all resources utilized by the project.

V. Calculation of shadow prices (Page 180 of the textbook): 1. For inputs and outputs with market prices that can be traded internationally: New information: The shadow price of export outputs (price at the factory gate) = FOB price × shadow exchange rate – export costs. The shadow price of imported inputs (price at the factory gate) = CIF price × shadow exchange rate + import costs. 2. For non-tradable items: ① If the project operates in a competitive market, market prices should be used to calculate shadow prices ； ②The scale of input and output for these projects is large; when market prices differ between situations with projects and those without projects, the average of the two values is used to calculate the shadow price. 3. The output value of a project does not have a market price; therefore, the principle of consumers’ willingness to pay and/or accept compensation should be followed, and the following methods can be used to estimate the shadow price: ① Revealed preference – Indirectly estimate the shadow price of the output value by using other relevant market price signals ； ②State preferences: Using the willingness-to-pay survey evaluation method, analyze the respondents’ willingness to pay or to accept compensation, in order to infer the shadow prices of the relevant external impacts caused by the project. 4. Calculation of special output effects ① For projects whose output effects are manifested in impacts on human capital, life extension, or disease prevention, monetary or non-monetary methods should be used to quantify the value of the increase in human capital, the value of potential death reduction, and the value of the impact on health ； ②For projects whose benefits are manifested in cost savings, the economic savings resulting from these savings should be calculated through a \"before-and-after\" comparison, and then included in the project’s corresponding economic benefits ； ③For projects that result in time savings, it is necessary to analyze and quantitatively assess the sensitivity to time among different groups of people and types of goods, following the principle of comparison between having and not having such savings. 5. Calculation of external effects of a project: “External effects” refer to situations where the outputs or inputs of a project inadvertently impose costs or benefits on others, without the project itself incurring any costs or reaping any benefits as a result. Quantitative calculation of external environmental effects: Indirect estimation methods for costs and expenses include the substitution cost method, preventive expenditure method, replacement cost method, opportunity cost method, and willingness survey assessment method. Others include the implicit value analysis method, product substitution method, and outcome reference method. ㈡ Forms that need to be modified: Table for estimating direct benefits of a project, Table for estimating indirect costs of a project, Table for estimating indirect benefits of a project. VI. Parameters for national economic evaluation: ㈠ Social discount rate: Original value: 10%; New value: 8%, with a minimum of 6%. ㈡ Shadow wage conversion factor: Original value: 1 for skilled labor and 0.8 for unskilled labor. New value: 1 for skilled labor (where the shadow wage is equal to the financial wage); for unskilled labor, the shadow wage conversion factor is generally between 0.25 and 0.8. VII. Cost-benefit analysis: ㈠ Concept: It involves comparing the expected outcomes of a project with the costs incurred, in order to determine the cost-effectiveness or economic viability of that project. (ii) Conditions for cost-effectiveness analysis: Cost-effectiveness analysis follows the principle that multiple options must be considered. The projects to be analyzed must meet the following conditions: 1. There should be no fewer than two alternative options, and these options must either be mutually exclusive or can be transformed into mutually exclusive options ； 2. Alternative options should share common goals; options with different goals or those that do not meet the minimum performance requirements cannot be compared ； 3. The costs of alternative options should be quantifiable in monetary terms, and the amount of funds required should not exceed the available financial limits ； 4. The effects should be measured using the same non-monetary unit; if there are multiple effects, their indicators are weighted to form a single composite indicator ； 5. The alternative options should have comparable lifecycles. (III) Steps of cost-benefit analysis: 1. Steps for analyzing two alternative options; 2. Steps for analyzing more than two alternative options. (IV) Calculation of costs: See Pages 191–192 in the second volume of the textbook. 1. Present value of costs (PC); 2. Annual value of costs (AC). (V) Calculation of benefits: Select a measurement unit that can effectively reflect the degree to which project objectives are achieved, based on the actual conditions of the project. (vi) Cost-effectiveness analysis, Textbook for Teaching, Volume 2, P192: 1. Analysis indicators; 2. Analysis methods: ① Minimum cost method – Under conditions of equal effectiveness, the option with the lowest cost should be chosen. ② Maximum effectiveness method – Under conditions of equal cost, the option with the highest effectiveness should be chosen. ③ Incremental analysis – When neither the effectiveness nor the cost is fixed, and there are significant differences between them, it is necessary to compare the cost difference and the effectiveness difference between the two options, in order to determine whether the additional cost required to achieve an incremental improvement in effectiveness is worth it. (vii) Analysis of regional economic and macroeconomic impacts (familiarity). Textbook, Volume 2, P193: Articles 1 to 6. Subject 5, Chapter 6: Methods for National Economic Evaluation. Methods for identifying national economic costs and benefits; methods for determining prices used in national economic evaluation (shadow prices); parameters for national economic evaluation; methods for analyzing national economic cost-benefit flows (indicators for assessing profitability).

I. Methods for identifying national economic costs and benefits. Textbook, Volume 2, P411. Principles for identifying national economic costs and benefits (new content; qualitative analysis questions based on cases):
1. Adhere to the principle of comparison between “with” and “without” the project.
2. Conduct a comprehensive analysis of the costs and benefits associated with all stakeholders and groups affected by the project.
3. Properly identify positive and negative external effects to avoid miscalculations, omissions, or double-counting.
4. Determine the spatial scope and time frame of benefits and costs reasonably.
5. Properly identify and adjust transfer payments, treating different situations differently.

II. Methods for determining prices used in national economic evaluation. Textbook, Volume 2, P413. Methods for calculating shadow prices.
(i) Methods for calculating shadow prices of ordinary goods. New content: The shadow price of exported goods (factory price) = FOB price × shadow exchange rate – export costs. The shadow price of imported inputs (factory price) = CIF price × shadow exchange rate + import costs.
(ii) For foreign trade goods or non-foreign trade goods that do not have market prices, the calculation of their shadow prices should be based on the principle of consumers’ willingness to pay and/or willingness to accept compensation. The following methods can be used to determine shadow prices:
① Revealed preference: Indirectly estimate the shadow price of output effects by using signals from other relevant market prices ； ②State preferences: Using the willingness-to-pay survey evaluation method, analyze the respondents’ willingness to pay or to accept compensation, in order to infer the shadow prices of the relevant external impacts caused by the project. (III) Methods for calculating the shadow prices of special inputs: Page 417 of Volume 2 of the textbook. Original content: Opportunity cost method. New content: Adjustment of the shadow wage conversion coefficient along with the financial wage method. Specifically, 1) the shadow wage conversion coefficient for skilled labor is 1 (the shadow wage equals the financial wage); 2) for unskilled labor, the shadow wage conversion coefficient is generally between 0.25 and 0.8.

III. Parameters for national economic evaluation
(I) Social discount rate: Original value: 10%. New value: 8%, with a minimum of 6%.
(II) Shadow wage conversion coefficient: Original value: 1 for skilled labor and 0.8 for unskilled labor. New value: 1 for skilled labor (the shadow wage equals the financial wage), while for unskilled labor, the shadow wage conversion coefficient is generally between 0.25 and 0.8.

IV. Methods for analyzing national economic benefits and costs
(I) Modifications: 1) Economic internal rate of return: Original definition: If the EIRR is equal to or greater than the social discount rate, it indicates that the net contribution of the investment project to national economic development meets or exceeds the requirements set by the economy; thus, such a project is considered acceptable from a national economic perspective. New content: If the EIRR is equal to or greater than the social discount rate, it indicates that the economic efficiency of the resource allocation for the project has reached an acceptable level. 2. Economic Net Present Value: The original text states that if ENPV is equal to or greater than 0, it indicates that the investment project can achieve national economic benefits that meet the requirements of the social discount rate; therefore, such a project can be considered acceptable from the perspective of national economic evaluation. New content: If ENPV is equal to or greater than 0, it indicates that the project can achieve an efficiency level that meets the requirements of the social discount rate, and the project is considered acceptable from the perspective of resource allocation. 3. Calculation methods for profitability evaluation indicators: the economic benefit-cost ratio (RBC) has been added. For details, see page P22, item ㈡ of the third edition of “Methods and Parameters”. The following tables have been revised: 1. Project investment economic cost-benefit flow table; 2. Domestic investment economic cost-benefit flow table; 3. Adjustment table for estimated investment costs in economic cost-benefit analysis; 4. Adjustment table for estimated operating costs in economic cost-benefit analysis; 5. Adjustment table for estimated direct benefits of a project; 6. Table for estimating indirect costs of a project; 7. Table for estimating indirect benefits of a project. The economic comparison of alternatives involves revisions to certain concepts such as benefit comparison methods, cost comparison methods, the lowest price method, and methods for comparing alternatives under uncertainty. Economic comparison of alternatives mainly relates to Chapter 8 of Subject 5, “Economic Comparison and Optimization Methods for Alternatives”. I. Methods for economic comparison of alternatives: Page P449 of the second volume of the textbook. 1. System of methods for economic comparison of alternatives: includes benefit comparison methods, cost comparison methods, the lowest price method, and benefit/cost ratio method. Among these, benefit comparison methods include net present value comparison method, net annual value comparison method, and incremental internal rate of return method. Cost comparison methods include present value of costs comparison method and annual value of costs comparison method. 2. Benefit comparison methods: (1) Net present value comparison method – new content: formula; (2) Net annual value comparison method – new content: formula; (3) Incremental internal rate of return method – new content: formula (applies to both financial evaluation and national economic evaluation). 3. Cost comparison methods: (1) Present value of costs comparison method – new content: formula; (2) Annual value of costs comparison method – new content: formula. 4. Lowest price comparison method – new content: formula. II. Methods for comparing alternatives under uncertainty: Page P457 of the second volume of the textbook. When comparing multiple alternatives, it is necessary to analyze the impact of uncertainty factors and risk factors on such comparisons; uncertainty analysis and risk analysis should be conducted when needed. The selection of alternatives under uncertainty should follow the principle of balancing benefits and risks. Methods for comparison: 1, 2, 3. Uncertainty analysis involves modifications to certain concepts. Formula for break-even analysis: Original formula: Annual total fixed costs × 100% = BEP; Annual sales revenue – Annual total variable costs – Annual sales taxes and fees. New formula: Annual total fixed costs × 100% = BEP; Annual operating income – Annual total variable costs – Annual operating taxes and fees. Risk analysis involves modifications to concepts such as risk identification, risk estimation, risk assessment, risk mitigation, risk analysis methods, and procedures for risk analysis. Subject 3, Chapter 12: Project Risk Management, Textbook, Volume 2, page 683. Risk identification, risk estimation, risk assessment, risk mitigation. I. Risk identification (familiarization). Textbook, Volume 2, page 251. Risk identification should be carried out using a systems approach to conduct a comprehensive examination and analysis of the project, in order to identify potential risk factors. By comparing these factors, their interrelationships and independence can be determined, as well as their likelihood of occurrence and the extent of their impact on the project. Sensitivity analysis is an important tool for initially identifying risk factors. Risk analysis should focus on the most fundamental characteristics of risks, namely uncertainty and the potential for losses. Common methods for risk identification include questionnaire surveys, expert assessments, and scenario analysis. There are also certain issues that need to be taken into account when identifying risks. II. Risk estimation (familiarization): As stated on page 251 of Volume 2 of the textbook, risk estimation should employ statistical methods based on subjective and objective probabilities to determine the probability distribution of risk factors. Mathematical statistics analysis methods are then used to calculate the corresponding probability distributions, cumulative probabilities, expected values, and standard deviations for project evaluation indicators. (i) Subjective probabilities refer to people’s subjective judgments regarding the likelihood of a certain risk factor occurring, and they are expressed using values between 0 and 1. Subjective estimation is based on the large amount of information available to people or on the accumulation of long-term experience. Objective probability (estimation), on the other hand, involves using a large amount of experimental data and statistical methods to calculate the probability distribution of a certain risk factor, thereby determining the likelihood of its occurrence. 1. The common types of risk probability distributions are discrete probability distributions and continuous probability distributions. Among them, common continuous probability distributions include the normal distribution, log-normal distribution, Poisson distribution, triangular distribution, binomial distribution, and others. 2. Common methods for determining the probability distribution of risk events include analysis techniques such as probability trees, Monte Carlo simulation, and CIM models. III. Risk Assessment (Familiarization) Textbook, Volume 2, Page 252: Risk assessment involves a comprehensive analysis of the economic risks associated with a project; it is a process of ranking these project risks based on the extent to which they affect the project’s economic objectives. Risk assessment is a process that, based on risk identification and estimation, involves establishing a systematic evaluation model for project risks, analyzing the probabilities of occurrence of various risk factors, determining the potential magnitude of losses, identifying key risks, and assessing the overall risk level of the project. Criteria for risk assessment: ㈠ Using the cumulative probability and standard deviation of economic indicators as criteria; ㈡ Using the overall risk level as a criterion. IV. Risk response (covered in the second volume of the textbook, page 253): ㈠ Principles of risk response; ㈡ Main approaches to addressing risks during the decision-making phase; ㈢ Approaches to addressing risks during the construction or operation phase: 1. Risk avoidance; 2. Risk sharing; 3. Risk transfer; 4. Bearing risks oneself. Subject 5, Chapter 9: Methods for analyzing risk probabilities. I. Risk identification (covered in the second volume of the textbook, page 471). II. Risk estimation: Calculation of standard deviation. Original content: New content: III. Risk assessment: Criteria for risk assessment (covered in the second volume of the textbook, page 474). IV. Methods for analyzing project risks: ㈠ Methods include expert survey method, analytic hierarchy process, probability tree method, CIM model method, Monte Carlo simulation method, etc.; ㈡ Expert survey method; ㈢ Analytic hierarchy process (covered in the second volume of the textbook, page 476); ㈣ CIM method: It involves control intervals and memory models, also known as models based on the combination of probability distributions, or “memory models”. V. Brief process of risk analysis operations Textbook, Volume 2, P482 (i) Economic risk analysis is carried out on the basis of sensitivity analysis. (ii) A systematic and focused economic risk analysis is conducted. Last edited by Xi Du Ouyang Feng on 2008-12-17 at 12:19.]