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OBJECTIVE :

 
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Jaideep Jadhav 3
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Jaideep Jadhav 4
` 
  
     
     

‡ Study the demand and supply position in


different industries.
‡ Evaluate the product profiles of various
industries.
‡ Analyze the trend in imports and exports to
identify potential opportunities.

Jaideep Jadhav 5
` 
 
 ` 



The following criteria should be evaluated:


‡ Compatibility between the promoter¶s
financial ability and the project¶s
requirement.

‡ Compatibility of the project with


governmental guidelines and legislations.
Jaideep Jadhav 6
` 
  ` 
The factors that are considered in feasibility
study are:
‡ Estimates of the project cost,
‡ Means of financing the project,
‡Schedules of implementation,
‡Estimates of costs and benefits associated
with the project.

Jaideep Jadhav 7
` 
 
  
This phase involves conversion of the investment
proposal into a concrete project.

Activities in this phase:


‡Preparation of blue prints
‡Selection of machinery
‡Arrangement of project finance,
‡Installation of machinery,
‡Trial run and actual production.

Jaideep Jadhav 8
` 
  


‡ Once the project has been implemented, it


is important to review the project in terms
of the performance that was expected in
the feasibility study.

‡ If there are deviations of the actual


performance of the project from the
planned performance, the causes for such
deviations should be checked.
Jaideep Jadhav 9
a `  !a" "`"#

 j"$a" "`"#
] It aims at determining/forecasting the total market
demand for the product and the market share that the
product or service will occupy.

 a!%&!"#" "`"#
] It aims at analyzing the technical aspects of the
project like availability of required quality and quantity
of raw materials, other requirements like power, water
etc.

Jaideep Jadhav 10
   6›   

 &"&!"#" "`"#
] This appraisal helps in evaluating the financial costs
and benefits associated with a project.

 !&j!" "`"#
] It helps in evaluating the extent to which the project is
beneficial to the society. Aspects like impact of the
project on the distribution of income, level of savings
etc.

Jaideep Jadhav 11
 '

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Jaideep Jadhav 12
›   
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@ 
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0 $#'$

Jaideep Jadhav 13
 
 ›9:


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Jaideep Jadhav 14
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* 
'"'"$%"'("$ )+'"
Initial Investment
Annual Cash Outlay
Jaideep Jadhav 15
PAYBACK PERIOD (cntd«)
'"'"$%"'("$ )+'"
)./›'' '('"$%"
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Jaideep Jadhav 16
From the following information calculate
Pay Back Period of Project A and B.
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Jaideep Jadhav 17
Solution
Yr  $4 $4 
›'" $% ›'" $% › &› › & ›
1 5E7EEE 1E7EEE 5E7EEE 20,000
2 2E7EEE 1E7EEE GE7EEE 40,000
3 1E7EEE 1E7EEE 1,00,000 60,000
4 .E7EEE 2E7EEE 1,10,000 90,000
5 .E7EEE 3E7EEE 1,20,000 1,30,000
6 --- 5E7EEE ---- 1,80,000
Jaideep Jadhav 18
Continued
‡ Pay Back Period
= '"'B =+›'"$% '-
-' ›'"$% '-
Pay Back Period of Project A = 3years

Pay Back Period of Project B


= 4 year + 1,00,000-90,000
40,000
= 4.25 Years

Jaideep Jadhav 19
ABC Ltd. is considering two Projects. Each requires an investment of Rs. 10,000. The
net cash inflows from investment in the two projects A¶ and Y are as follows:

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The company has fixed three years pay-back period as the cut-off point.

Jaideep Jadhav 20
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Jaideep Jadhav 21
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Jaideep Jadhav 22
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Jaideep Jadhav 23
Summary

Financial appraisal are divided into


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Pay back Period
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$,
Jaideep Jadhav 24
,4("$"""$
To understand the

‡ Appraisal criteria using the time value of money


concept
- Net Present Value
   ›   
9
 
  › ›;
   

Jaideep Jadhav MITSOT Pune 25


   


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Jaideep Jadhav MITSOT Pune 26
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Jaideep Jadhav MITSOT Pune 27
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Jaideep Jadhav MITSOT Pune 28


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Jaideep Jadhav MITSOT Pune 29


Project X initially cost Ks, 25,000. It generates the following cash flows:

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Taking the cut-off rate as 10% suggest whether the project should be
accepted or not

( Ans. NPV Ks. 2,249, the project should he accepted)


Jaideep Jadhav MITSOT Pune 30
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Jaideep Jadhav MITSOT Pune 31
Problem
Cash flows of a certain project are as follows:
Calculate Benefit Cost ratio of the project by assuming cost
of capital is 10%.
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Jaideep Jadhav MITSOT Pune 32
Solution
  ! , ( ( ! , ( (
     
. .5EEEE .&EEE .5EEEE 1EEEE E&IEI .G.GE
1 2EEEE E&IEI 1L1LE 2EEEE E&G1F 13LGE
2 FEEEE E&L5. 35EFE
3 GEEEE E&FG2 53F3E
5 2EEEE E&F1. .GF3E
F 2EEEE E&5F3 .FI1E
.LL1LE .LG.GE
Jaideep Jadhav MITSOT Pune 33
Solution (Continued)
"('$ '" $ "
 i
'(" 

= 178180/177270
= 1.005

Accept the project as Profitability index > 1

Jaideep Jadhav MITSOT Pune 34


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‡ Concept and problem

Jaideep Jadhav MITSOT Pune 35


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Jaideep Jadhav MITSOT Pune 36


     


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Jaideep Jadhav MITSOT Pune 37


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Jaideep Jadhav MITSOT Pune 38


Calculation of IRR
‡ |

 
‡ Trial and Error Method
‡ Select any discount rate to compute the present value of
cash inflows
‡ If the calculated present value of the expected cash inflow is
lower than the present value of cash outflows, a lower rate
should be tried.
‡ A higher value should be tried if the present value of inflows
is higher than the present value of outflows
‡ This process will be repeated unless the net present value
becomes zero.
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?.EE33 IG23A

Jaideep Jadhav MITSOT Pune 40


 
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Jaideep Jadhav MITSOT Pune 41

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Jaideep Jadhav MITSOT Pune 42


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Jaideep Jadhav MITSOT Pune 43
`   
"('$$""'""$'+% 
. D
D37EE7EEEB.E7EEE-?IJ7.'ABG7EEE-?IJ71
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3 7 2. 7.12
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2 & 13

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Summary

‡ Internal rate of return


] Concept
] Problems
‡ Annual capital charge
] Concept
] Problems

Jaideep Jadhav MITSOT Pune 46