Project preparation and appraisal. Preparation of project report and appraisal are intimately tied...
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Transcript of Project preparation and appraisal. Preparation of project report and appraisal are intimately tied...
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Project preparation and appraisal
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Preparation of project report and appraisal are intimately tied up
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Project identification
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A project is a proposal for capital investment to develop facilities to provide goods and services (new unit, expansion or improvement of existing facilities)
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Project idea can be conceived from input or output side
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Input based projects - agricultural raw materials- forest produce- animal husbandry- fishing products- mineral resources- human skills- new technical process
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Output based project
- Needs of the population
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Steps of project selection
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Preliminary selection stage - Decide whether a project idea should be studied in detail
- What should be the scope of further studies- Findings are embodied in a pre-feasibility study or opportunity study
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Prefeasibility study
- Output of plant of economic size- Raw material requirement- Sales realization- Total cost of production- Capital input/output ratio- Labour requirement Power and Infrastructural facilities
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Project selection exercise should also ensure that it conforms to overall economic policy of the government
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Feasibility study provides additional information on
- financing-breakdown of cost of capital- cash flow
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Feasibility study is the final document in the formulation of a project proposal
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Feasibility study should contain - technical data- economic data- examination of public policy- specification of output- alternative techniques of production- confirmation of ecology friendliness- choice of raw material- choice of plant size
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Feasibility study should contain….
- choice of site location- layout plan along with a - list of buildings, structures and yard facilities by type, size and cost- list of major and auxiliary equipment by type, size and cost with sources of supply and process know-how and- list of supply stores and present estimates of costs for transportation of services, water supply and power
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Feasibility study should contain….
- detailed investigation of quality and dependence of raw material and their sources of supply - market analysis to establish and determine economic levels of output and plant size- - financial data - estimates of sales revenue
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Feasibility study should contain
- - capital cost- - operating cost- - profitability- - estimates of working capital requirements to operate the unit at viable level- - schedule of implementation- estimates of expenditure during construction
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Feasibility study is followed by project report firming up all the technical data. Project report is detailed plan to follow up project through various stages of implementation
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Appraisal to analyse the soundness of project investment based on projections in terms of cash flow
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Evaluation
to compare and evaluate alternative variants of technology, of raw materials to be used, of production capacity, and of local production versus import
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Project selection can only be rational if it is superior to others in terms of commercial profitability or national profitability
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Financial appraisal
- is concerned with assessing the feasibility of a new proposal for investment for setting up a new project or expansion of existing production facility- is concerned with the measurement of profitability of resources invested in the project without reference to their sources
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Popular methods
simple rate of return methods
pay back period
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Discounted techniques
- Internal rate of return- NPV method
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Financial analysis
- Liquidity ratios- Current ratio- Acid test or quick ratio- Debt equity ratio- Fixed assets coverage ratio- Debit coverage ratio- Interest coverage ratio- Break even point
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Technical appraisal - is concerned with project concept covering technology, design, scope and content of plant as well as inputs and infrastructure facilities envisaged for the project
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Project concept
comprises plant capacity, degree of integration, facilities for by product recovery and flexibility of the plant
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Capacity of the plantFlexibility of the plantFlexible manufacturing systemEvaluation of technologyInputsLocationInterdependence of parameters of project
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Economic appraisal - deals with impact of project on economic aggregates
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Employment effect Net Foreign Exchange effect
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Social cost benefit analysis - is concerned with examination of a project from the view point of maximization of net social benefits Market imperfectionExternalitiesRedistribution