Sh The Reriem School of Uecouniteney Managerrorh Udrisory, Sorvicas MAS-D: PROJECT FEASIBILITY STUDY PROJECT FEASIBILITY STUDY - is a systematic gathering and analysis of the data aimed to find out practicability of @ business undertaking and, if found practicable, to determine the degree of profitability. DATA COLLECTION | sac——> | DATA EVALUATION | ox RECOMMENDATION Vg SRE ae a —— USERS OF THE FEASIBILITY STUDY PROJECT PROPONENTS The study would serve as a basis for selecting good venture, for implementing activities and for formulating long-range plans. CREDITORS & INVESTORS The study would serve as a basis in deciding whether to grant financing and for determining the amount and terms thereof. MANAGEMENT The study would help in ascertaining the feasibility of expansion programs, in deciding on the Possibility of taking over existing business, as well as the extent of the capital outlay required. GOVERNMENT INSTRUMENTALITIES The study would help to ensure that the project meets necessary legal requirements, and would help determine the extent of government incentives that may be granted. GENERAL PUBLIC The study would aid in minimizing the risk of business failures, reducing waste of valuable resources, and thereby accelerating economic growth. MAJOR ASPECTS PARTS OF THE FEASIBILITY STUDY MANAGEMENT ‘assists in the selection of the business structure, personnel set-up, and internal policies of the enterprise for an effective operation. MARKETING involves the study of the present and future demand and supply for the product, competition, selling price, and marketing plans for the product. TECHNICAL aims to choose the process to be used, plant capacity, layout, machinery design, materials and other technical factors to attain cost minimization and profit maximization. TAXATION covers the study of tax effects as well as legal tax saving measures and other ‘government incentives applicable to the project. LEGAL determines legal capacity and restrictions to do business so that legal requirements are met and possible incentives and protection are availed of. FINANCIAL quantifies the result of marketing, technical, management, taxation and legal aspects and expresses the profitability of the project in peso terms. FINANCING SOURCES determines possible internal and external sources, terms, and condition of financing. ECONOMICS involves the study of the project's contribution to the national economy as a whole. COMPONENTS OF THE FINANCIAL ASPECT Statement of Assumptions Projected Financial Statements ‘Analysis of Financial Projections Possible Sources of Outside Financing STATEMENT OF ASSUMPTIONS ‘Assumptions are explicit statements about the possible future behavior of certain variables affecting a project that serves as the premises for projecting probable results. Realistic assumptions are needed to provide a definite and specific basis for financial projections. Page 1 of 2 pagesRESO. The Review School of lcconrdoneg MAS-D PROJECT FEASIBILITY STUDY PROJECTED FINANCIAL STATEMENTS The projected financial statements shall include: ‘© Projected income statement ‘+ Projected balance sheet © Projected cash flow staternent The periods covered by these statements would normally commence from the pre-operating stage of the project until its first few years of operations, with some provision for business expansion that could lead to extending the life of the project. Using the projected financial staternents, evaluation of the project's viability may further be enhanced by developing or applying the meaningful financial ratios or analytical tools dealing with the project's profitability, liquidity, solvency, stability and capital structure SOURCES OF FINANCING INTERNAL sources - funds generated within the firm. Examples: Retained earnings, sale of fixed assets, and reduction of working capital EXTERNAL sources - funds provided by owners (equity) or creditors (debt). Examples: Issuance of debt securities (Lords) or equity securities (common stock) LIMITATIONS & CONSTRAINTS OF A FEASIBILITY STUDY ‘* Unavailability of required and necessary information. + Incompetence or inexperience of the one making the judgment resulting in erroneous conclusions, and ineffective recommendations. ‘+ Any significant change in the business environment usually renders results of forecast not coinciding with actual events. WRAP-UP EXERCISES (TRUE or FALSE; MULTIPLE-CHOICE) 1. A project feasibility study ensures the viable realization of a proposed project. 2) One of the common purposes today for coming up with a feasibility study is to provide prospective investors objective data for purpose Of their investment decision. 3. Which ofthe following is NOT an activity covered by feasibility study? '2._ Activity based accounting of the endeavor leading to @ conclusion b. Evaluation and analysis of data collected ¢. Formulation of recommendation d._ Collection of data 4. The ‘comprehensive process of feasibiity etudy must extend up to the commissioning of commercial start-up of the business. Ina project feasibility study, which of te followng statements js FALSE? PAE change which Can material aiter the assumptions used in the preparation of the forecast wil render it useless b. The project study is important for government agencies in order to determine entitlement te government incentives cc. Project study may also cover the social desirabty aspects of a proposed undertaking SF Sve’ tata gathering is a basic step in its preparation, all the necessary and required information will always be availa 6. Among tne following major parts of a project feasibilty study, which grouping 1s considered critical? ‘a. Management, financial and social returns b.Technieal, Financial and environmental aspects ©. Economic benefits, management, nancial @, Marketing, engineering/techaical ant financial 7. Thefhnancial espect of 9 feasibility study = generally based on projections and forecasts 3 Ina project feasibility study, which of che following statements is FALSE? 2 etme: project is based on available information and opinions of the party involved im the preparation of the study. b. Fhe characteristics of 9 good feasibiity study are comprehensiveness, objectivity and simplicity. c. The study is primarily a forecast which always tallies with actual events. &._ One of the parties interested in Feasibilty studies is the stockholder Suagested Answers 1. False* 2, True 38 4. False 5D 6 0 7. True & ou = A project feasibility study does not ensure viable realization of a proposed project. 8A project feasibility study does not cover the commissioning of commercial start-up of the business. Page 2 of 2 pages ®&