tant financial terms and a tool for operators to decide if a business concept is profitable in the future. SCOPE The main purpose of this appendix is to explain some common financial terms and tools, used to assist an operator/service provider in making good investment decisions. Such tools and terms are case studies, cost/benefit studies, discounted cash flow studies, net present value and internal rate of return calculations. Further, the corporate policy should not be overlooked in this context. Operator business case development Operating expense Revenue Financial calculations Capital expenditures Tools Figure A2.1 Operators business case development Understanding Changing Telecommunications - Building a Successful Telecom Business, by A. Olsson © 2003 Ericsson och Student litteratur. ISBN: 0-470-86851-1 Understanding Changing Telecommunications - Building a Successful Telecom Business Other related subjects are business accounting, business profitability and performance, and finally business risks. The appendix constitutes the final step in the operator business case development oth- erwise covered in Chapter 4. See Figure A2.1. BASIC TERMINOLOGY REVENUE, COST AND PROFIT Other basic terms are income statement and profit and loss account. Let us consider a traditional operator. See Figure A2.2. In the middle of the figure is the service producing machine, the network. According to Section 4.7 on cost efficiency in Chapter 4 the investments in the network can be split into operational investments to meet customer growth (baseline cost), and discretionary investments for purposes such as the introduction of a new technology. The discretionary investments are often large and irregular. The cost of financing them, often through loans, is converted into annualized capital cost corresponding to interest and depreciation. In the context of this chapter we simply add the two investment types. Then we add operating expenses and bought services including interconnection expenses. See Figure 9.3. This gives us the overa