Q.

10 DPR
Preparation of detailed project report ( DPR ) – after approval of investment proposal based on FR ; DPR
is prepared to firm up the proposal for capital cost and various facilities.

Contents of DPR

1. site investigation

2. examination of plant capacity as per product mix , technological parameters , & techno-
economic factors

3. Description of technological process parameters

4. Requirement and sources of service facilities like power , water ,steam ,compressed air ,
transport facilities

5. layout of individual shops and units including link up of various facilities

6. selection of plant & equipment

7. 7.broad technical specifications for plant & equipment

8. 8.evaluation of existing transport & service facilities with a view to utilize to maximum extent
and integrate the same for proposed modification or new project or projects

9. 9.volume of site works

10. 10.capital cost estimate

11. 11.production costs

12. 12.profitability analysis

13. 13.requirement of manpower

14. 14.construction schedule

15. 15.drawings - general layout , shop wise layout ,and flow diagrams etc.

Q14 Role of financial institutions

1. Survey of potential for industrial growth

2. Maximizing export earnings by identifying products with good export potential

3. Maximizing industrial production of both capital & consumer goods

4. Identifying projects with employment generation potential

5. Maximizing self-employment opportunities

6. Promotion of industrial health

Types of Assistance

1. Rupee term loan

2. Foreign currency term loan

3. Underwriting of equity capital ,preference capital , debentures and bonds

4. direct subscription of capital

5. guaranteeing loans raised by industrial concerns from different sources and extending
guarantees in respect of deferred payments by importers.

6. bill rediscounting

7. operation of technical development fund

8. soft loan schemes

9. equipment financing

10. lease financing

11. seed capital assistance

12. risk capital assistance

Funding :

Before giving Financial Assistance financial Institutions look at :

1. Debt – equity ratio

2. Promoter’s contribution

3. Security margin

4. Debt service capability

 NOTES

Q 2 Sensitivity analysis
• Large no. Of assumptions are on a variety of aspects are made while preparing detailed project
report , budgets and cash flow .These assumptions change due to unpredictable events or due
to inadequacies or inherent errors e.g

1. Errors in base data

2. Analysis based on inadequate data

3. Unforeseen economic and socio-political developments

4. Some essential parameters overlooked

5. Some relevant factors & relationship unknown / suppressed

6. Unrealistic assumptions

7. Rapid technological changes.

Other uncertainties ,such as:

• Unpredictable shifts national and per capita income

• Emergence or disappearance of a dominant competitor

• Drastic changes in family incomes

• Changes in transportation costs

• Trade agreements with trade blocks

• Introduction of new sources of raw materials or substitutes

• Changes in tariff policies

• New application possibilities for the product

Sensitivity analysis helps in identifying those key variables which are critical to projects success by
analyzing impact on costs and revenue ,when factors influencing demand turn out to be less or more
favorable .

With the help of computers , returns from the project can be forecasted on optimistic (best ) ,
pessimistic (worst ) and realistic assumptions .
 Advantage :

simple diagnostic tool to check projects sensitivity to changes in one variable or other

Disadvantage :

can not predict which of the pessimistic or optimistic values have higher chance of occurring

NOTES Q 1 Cost of capital

Important to understand because :

1. Any project has to earn internal rate of return which can meet cost of funds

2. For borrowings for long term , short term ,working capital ,leasing etc

3. Costs of funds vary depending upon sources

Costs of funds vary depending upon sources

Cost of capital = (proportion of equity x cost of equity ) + (Proportion of debt x cost of debt )

Kc = p1k1+p2k2+….+pnkn

Or

Kc = w1ke+w2kr+w3kp+w4kd

Kc=composite cost of capital

Ke=cost of equity

Kr=cost of retainred earnings

Kp= cost of preference shares

Kd = cost of debt

W1, w2 , w3 ,w4 are weights according to proportions of capital from concerned source

Q9. Preparation of feasibility study / report

Detailed analysis on whether the project is viable or feasible or not is done by carrying out feasibility
study / report

It includes market analysis ,technical analysis , financial analysis and social profitability analysis
Market Analysis covers :

a. Market description-market area , methods of transportation , existing rates of transport ,

channels of distribution and general trade practices

b. Analysis of past & present demand , determination of quantity , value of consumption and
identification of major consumers of the product

c. Analysis of past & present supply , broken down as source ( imported / domestic ) , as well as
information to assist in determining competitive position of the product , such as selling price ,
quality and marketing practices of competitors

Technical analysis reviews the techniques or processes to be applied and incorporates :

a. Description of the product , including specification relating to its physical , mechanical and
chemical properties as well as its use

b. A description of selected manufacturing process with flow charts and also alternative processes
considered and justification for adoption of selected process.

c. Determination of plant size and production schedule with expected volumes over a given time
period on the basis of start up and. Selection of machinery and Equipment ,their specifications ,
possible sources , make , quotations , delivery dates , terms of payment , comparative analysis
of alternatives in terms of cost , reliability performance and spare parts availability

d. Location & analysis of desirability in terms of distance from raw material sources and markets &
availability of manpower

e. For new project , add comparative study of different sites with advantages & disadvantages of
each.

f. Design of plant layout and estimate of cost of erection of proposed buildings and land
development

Financial Analysis covers :

a. For projects involving new companies , statement of total project cost , initial capital
requirements and cash flows as per project schedule

For all projects , , financial projections for future time periods , including income statements ,
cash flows and balance sheets

b. Supporting schedules for financial projection with assumptions made regarding collection period
of sales , inventory levels , payment period of purchases and expenses , element of production
cost , selling ,administrative and financial expenses.
c. Financial analysis showing returns on investments , returns on equity , break-even volume and
price analysis
d. If necessary , a sensitivity analysis to identify items which have a substantial impact on
profitability or possibly a risk analysis

Notes Q6 ans ppt no 7