5.0_FINANCIAL_ANALYSIS_AND_EVALUATION

5.0_FINANCIAL_ANALYSIS_AND_EVALUATION - FINANCIAL ANALYSIS...

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FINANCIAL ANALYSIS AND EVALUATION IE 153
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OBJECTIVES To assess the project’s commercial profitability To evaluate the project’s capability to service its obligations
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WHEN IS A PROJECT FINANCIALLY FEASIBLE? A project may be considered financially feasible if: The project generates a rate of return acceptable to both the project proponent and the funding institution. The project can meet its debt service obligations.
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FORMULATING ASSUMPTIONS Factual Justifiable Realistic Workable
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CONSIDERATIONS Existing business practices in the industry Credit terms and extensions Bad-debt allocations and write-off Dividend policies Labor and management compensation Inventory costing Operating accounts Fixed-asset requirements Method of depreciation and amortization
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Previously made feasibility studies related to the project Selling price Sales forecasts Unforeseen costs Production volumes Production mix CONSIDERATIONS, cont’d
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Government regulations and incentives Import and export policies Tax rates Tax exemptions Price ceilings Relevant presidential decrees and executive orders CONSIDERATIONS, cont’d
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ESTIMATING PROJECT COST Fixed Assets Preproduction Capital Expenditures Working Capital Requirements
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FIXED ASSETS Land and land improvements Buildings, furniture, fixtures Machinery and equipment purchase and installation Others: industrial property rights, etc.
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PREPRODUCTION CAPITAL EXPENDITURES Preliminary and capital issue expenditures Cost of forming the organization (registration) Land purchase agreements, other legal fees Patents Expenditures for preparatory studies Consultant fees Travel fees
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WORKING CAPITAL REQUIREMENTS Cash Inventory (materials, spare parts) Accounts receivables Expendable supplies Prepaid expenses (insurance, rents, etc.)
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ESTIMATE OF FINANCING NEEDS Forms of Financing Sources of Financing Considerations
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FORMS OF FINANCING Equity financing Debt financing
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SOURCES OF FINANCING Private investors or capitalists Commercial and industrial banks Government agencies Finance companies Industrial corporations or business enterprises
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EFFECTIVE COST OF FINANCING Currency repayment Amount
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This note was uploaded on 05/19/2011 for the course IE 2 taught by Professor A during the Spring '11 term at University of the Philippines Diliman.

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5.0_FINANCIAL_ANALYSIS_AND_EVALUATION - FINANCIAL ANALYSIS...

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