Project Feasibility Study

&
Post Evaluation

XUE Yan
薛 岩
Prof. Dr. Xue Yan Peking University
 Prof. Dr. XUE Yan 薛岩
◼ Professor of Peking University
◼ Vice President (2011-2012), Advisory Committee ( 2019-
now) of IPMA
◼ Vice President of Project management Research
Committee, China
◼ Honorary fellowship of IPMA.

Contact：xueyan@ss.pku.edu.cn

Prof. Dr. Xue Yan Peking University

 Contents
Day 1
◼ The purpose of project feasibility study

◼ Project feasibility study scope and outlines

◼ Group exercise

➢ Business case development

➢ balance scorecard

Prof. Dr. Xue Yan Peking University

 Contents
Day 2
◼ PROJECT FEASIBILITY STUDY

➢ Market Study
➢ Project Scale and Product Scheme
◼ Group exercise
➢ Project Background and objectives
➢ Market Study

Prof. Dr. Xue Yan Peking University

Contents
Day 3
◼ PROJECT FEASIBILITY STUDY

➢ Environment Impact Analysis

➢ Social impact analysis
◼ Group exercise
➢ Environmental and social impact analysis

Prof. Dr. Xue Yan Peking University

 Contents
Day 4
◼ PROJECT FEASIBILITY STUDY

➢ Project Implementation Schedule

➢ Investment Estimation
➢ Financing Planning
◼ Group exercise
➢ Project implementation schedule
➢ Investment Estimation
➢ Financing Planning
Prof. Dr. Xue Yan Peking University
Group exercise 5：
Project implementation schedule

◼ Develop project implementation

schedule

Prof. Dr. Xue Yan Peking University

 Group exercise 6：
INVESTMENT ESTIMATION

Each group for your project, please:

◼ Estimate the entire project investment

◼ Establish a total investment estimation table

shown name of items and investment

schedule

Prof. Dr. Xue Yan Peking University

 Group exercise 7：
FINANCING PLANNING

Each group for your project, please:

◼ Based on the investment estimation, make

your project financing planning.

Prof. Dr. Xue Yan Peking University

Contents
Day 5
◼ PROJECT FEASIBILITY STUDY

➢ Financial Analysis
◼ Group exercise
➢ Breakeven analysis
➢ Single-factor sensitivity analysis
➢ Financial Analysis

Prof. Dr. Xue Yan Peking University

PROJECT FEASIBILITY STUDY
Financial Analysis

Prof. Dr. Xue Yan Peking University

 FINANCIAL ANALYSIS

Financial analysis is to study and

forecast project financial income and
cost, calculate financial indicators,
exam the profitability and liquidity,
judge whether a project is financially
feasible.

Prof. Dr. Xue Yan Peking University

 Payback, P
Pt is the period of time through which the net profit
offsets the total investment.
Pt can be calculated according to cash flow statement .
When accumulation total net cash flow turns to be zero
from negative, the value of payback is determined.
the absolute value of net cash
the year when accumulative
flow accumulation last year
P= -1+
total net cash flow turns to be
positive from negative the current year net cash flow
Investment return: E=1/P
investment return E ≥ Estandard
If project is feasible
Payback P ≤ Pstandard
Prof. Dr. Xue Yan Peking University
 Payback, P

Example：
Assume the project cash flow statement as below：
year 1 2 3 4 5
Annual net
－5000 500 1000 2000 4000
cash flow

if the industry standard investment return is 12%,

according to the data in Table, please analyze if the
project is economically feasible

Prof. Dr. Xue Yan Peking University

 Payback, Pt
year 1 2 3 4 5
Annual net cash flow -5000 500 1000 2000 4000
Accumulative total net cash flow -5000 -4500 -3500 -1500 2500

the year when accumulative the absolute value of net cash

P= total net cash flow turns to be
positive from negative
-1+ flow accumulation last year
the current year net cash flow

= (5-1)+(1500/4000)= 4.38 (years)

E =1/P= 22.8% ≥12%
Project payback: 4.38 year, investment return: 22.8%,
project is economically feasible
Prof. Dr. Xue Yan Peking University
 Which is better and why?
The combing flows over time for project A and B shown
in figs. If other parameters are the same, please judge
which project is better, and why?

80 80
inflows

inflows
60 60
40 20 40
20

0 1 2 3 4 0 1 2 3 4
outflows

outflows
Year Year

-120 Project A -120 Project B

Prof. Dr. Xue Yan Peking University

 Time value

◼ PV (Present Value)
If you invested 10000Yuan (PV) right now with compounding rate
10%. How about the value of first period, the second year, and the
third year?
FV
FV = PV (1 + i) n PV
The first year: FV=10000(1+0.1) =11000
The Second year: FV=10000(1+0.1)2= 12100
0 n
The third year: FV=10000(1+0.1)3=13310

PV = FV / (1 + i) n FV：Future Value
i： Rate of growth per period (discount rate)
n：calculation period of time (the year of invest n=0）
Prof. Dr. Xue Yan Peking University
 Present Value (PV)

◼ Present Value ( PV)

PV = FV / (1 + i) n
FV： Future Value
i： discount rate
n： calculation period of time (the year of invest n=0）

Where, 1/ (1 + i) n : discount factor

Prof. Dr. Xue Yan Peking University

 Year 0 1 2 3 4 5

Annual net cash flow -1500 -1000 1000 1000 1000 1000

Accumulative total -1500 -2500 -1500 -500 500 1500

net cash flow
Discount factor 1 0.909 0.826 0.751 0.683 0.621
( Discount rate 10%)
Present value -1500 -909 826 751 683 621
Accumulated present -1500 -2409 -1583 -832 -149 472
value

Pt = 4 – 1 + 500/1000 = 3.50 (year)

Ptd = 5 – 1 + 149/621 = 4.24 (year)

Prof. Dr. Xue Yan Peking University

 Net present Value（NPV)
◼ NPV refers to the sum of net present value when annual
present values are calculated on a designed discount rate.
n

NPV= S (CI – CO) / (1 + i)

t=0
t
t

CI： cash inflow CO： cash outflow

(CI – CO)n ：net cash flow in year t
n: period of time in year for calculation
i： criterion discount rate
◼ NPV ≥ 0 , means that the profitability of the project could
achieve or exceed the required profit at a criterion discount
rate. Project can be accepted.
◼ NPV < 0, project could not be acepted
Prof. Dr. Xue Yan Peking University
 Internal Rate of Return (IRR）

◼ IRR is discount rate at which the annual

present value accumulation (NPV) through
out the calculation period is zero.
n
NPV= S (CI – CO) / (1 + i)
t=0
t
t ＝０

◼ IRR ≥ criterion discount rate , the project

could be accepted, the higher the better.
◼ IRR < criterion discount rate , the project
could not be accepted.
Prof. Dr. Xue Yan Peking University
Group exercise 8：
FINANCIAL ANALYSIS

Background:
SD company is a professional company
producing automatic control products. In
order to further expand the market, the
company has decided to invest in the
production of the FK products next year. The
basic data of this project are as follows:

Prof. Dr. Xue Yan Peking University

◼ Investment of 4.8 million RMB; the construction period is 1
year;
◼ The project will be put into production in the second year,
and the sales are expected to be 150 sets, with the fixed
cost of production and sales being 200,000 RMB. It is
expected that from the second year after the project is put
into production, FK sales will increase 100 sets annually for
two consecutive years compared with the previous year.
And then the sales will remain unchanged. In the second
year of FK production and the years after it, the fixed cost
production and sales is 400,000 RMB per year;
◼ The price for FK products is 10,000 RMB per set, and the
sales cost is 1,150 RMB per set.

Prof. Dr. Xue Yan Peking University

◼ Question 1：
For the convenient of calculation, assume that during the implementation of the
project, investment, income and cost all occurs at the end of the year, and the
project discount rate is calculated as 12%. Please compile Table 1 cash flow
statement according to the above information.
Table 1： Cash flow statement
Monetary unit: Ten thousand RMB

Year 1 2 3 4 5

Investment
Income
Cost
Net cash flow
Accumulative total net cash flow
Discount factor ( Discount rate 12%) 0.8929 0.7972 0.7118 0.6355 0.5674
Present value
Accumulated present value
Prof. Dr. Xue Yan Peking University
◼ Question 2:
According to the data in Table 1, without considering
the time value of the capital, please calculate the
investment payoff period of this project since the
investment year.

◼ Question 3:
Assuming that project industry standard dynamic
investment return is 18%, according to the data in
Table 1, please analyze if the project is economically
feasible?

Prof. Dr. Xue Yan Peking University

Uncertainty Analysis

The data used for project appraisal are

estimated or forecasted. They are
uncertain to some extent. In order to
examine the influence of the uncertain
factors on the project evaluation
indicators, uncertainty analysis is
required.

Prof. Dr. Xue Yan Peking University

Uncertainty Analysis

Main methods
◼ Breakeven analysis
◼ Sensitivity analysis
◼ Computer modeling

Prof. Dr. Xue Yan Peking University

 Breakeven Analysis

Profit and loss equilibrium analysis is actually a

special form of breakeven analysis, which
delivers breakeven production or sales when
profit and loss get equilibrium.
The lower the equilibrium point, the stronger the
market suitability, the stronger the anti-risk
capability.

Prof. Dr. Xue Yan Peking University

 Breakeven Chart

sales
Sales
or
Total cost breakeven profiting
Total cost
point
Variable cost

Losing Fixed cost of project

production
Breakeven full
quantity capacity

Prof. Dr. Xue Yan Peking University

 Breakeven analysis

A project designed production capacity is 120 (10,000

units ), planed sale price 100 Yuan/Unit, the annual fixed
cost is 2072(10,000 Yuan), the variable cost 55 Yuan/unit,
the sale and other tax 8 Yuan/unit. Company targeted
profit is 1500 (10,000Yuan).
Please analyze:
1) breakeven point production quantity
2) Production line utilization ratio of capacity
3) Production quantity in targeted profit
4) Breakeven sale price in designed capacity

Prof. Dr. Xue Yan Peking University

 Breakeven analysis
A project designed production capacity is 120 (10,000 units), planed sale
price 100 Yuan/Unit, the annual fixed cost is 2072 (10,000 Yuan), the
variable cost 55 Yuan/unit, the sale and other tax 8 Yuan/unit. Company
targeted profit is 1500 (10,000 Yuan)

1) breakeven point production quantity

2) Production line utilization ratio of capacity

analyze
Sales
1) Profit=sale income –taxi - total cost or
(100-8)*X – (2072+55X)=0 Total cost
sales
X = 2072/(100-8-55) breakeven
= 56 (10,000) unit point profiting
Total cost
Breakeven quantity=56 (10,000 unit)
Variable cost
2) utilization ratio of capacity Losing Fixed cost
= Breakeven quality / full capacity
= 56/120 production
56 120
= 46.7% Breakeven quantity full capacity

Prof. Dr. Xue Yan Peking University

 Breakeven analysis
A project designed production capacity is 120 (10,000 units), planed sale
price 100 Yuan/Unit, the annual fixed cost is 2072 (10,000 Yuan), the
variable cost 55 Yuan/unit, the sale and other tax 8 Yuan/unit. Company
targeted profit is 1500 (10,000Yuan)

3) Production quantity in targeted profit

analyze
3) Profit= sale income –taxi - total cost Sales
or
Total cost
sales
1500= (100-8)*X – (2072+55X)
X = 97 (10,000 unit) breakeven
point profiting
Total cost

To achieve company’ target profit Variable cost

of 1500 ( 10,000 yuan ), The Losing Fixed cost
production quality should be 97
(10,000 unit).
56 97 120 production
Breakeven Target profit full
quantity quantity capacity
Prof. Dr. Xue Yan Peking University
Breakeven analysis
A project designed production capacity is 120 (10,000 unit), planed sale
price 100 Yuan/Unit, the annual fixed cost is 2072 (10,000Yuan), the
variable cost 55 Yuan/unit, the sale and other tax 8 Yuan/unit. Company
targeted profit is 1500 (10,000Yuan) Sales or Total cost
sales

4) Breakeven sale price breakeven

profiting
point Total cost
in designed capacity
Variable cost
Losing Fixed cost
analyze
production
4) Profit = sale income –taxi - total cost 56 Breakeven quantity 120, full capacity
(X-8)*120 – (2072+55*120)=0
X = 80.3 yuan Sales
or
Total cost
sales
In full production capacity, the breakeven
Breakeven sale price is 80.3 yuan point Total cost

Variable cost
Losing Fixed cost

production
120
Prof. Dr. Xue Yan Peking University full capacity
 Group excise 9
Breakeven analysis
A company plans to establish a new production line, Please
analyze and compare the two options based on the data
provided in the table.
company targeted profit of this production line is 5 million Yuan
Options Fixed cost Variable cost sale price tax Designed
(10,000Yuan) (Yuan/unit） (Yuan/unit) (Yuan/unit) capacity
(10.000units)

A 2500 1700 3000 300 5

B 2100 2000 3000 300 4

Please analyze and compare those two options:

1) breakeven point production quantity
2) Production line utilization ratio of capacity
3) Production quantity in targeted profit
4) Breakeven sale price in designed capacity
Prof. Dr. Xue Yan Peking University
Happy Projects！

Prof. Dr. Xue Yan Peking University