Slide

Nguyễn Hoàng Vĩnh Lộc
PROJECT APPRAISAL
PRESENTED BY: LOC NGUYEN HOANG VINH

Email: locnhv@hub.edu.vn
Faculty of Banking
CONTENT
• Overview of Project Appraisal

• Maket – Technical – Human Resource
Appraisal
• Project Cash Flow Forecasting
• Project Evaluation Criteria
• The Cost of Capital
• Quantitative Risk Analysis Techniques
1
CHAPTER 1
Overview of Project Appraisal
• INVESTMENT PROJECT
• Project Definitions
• Roles of Project
• Project Classification
• Contents of Project
• Project Cycle
• PROJECT APPRAISAL
• Project Appraisal Definitions
• Roles of Project Appraisal
• Project Appraisal Stages
• Project Appraisal Aspects
• Project Appraisal Point of Views
Project Definitions
A project is defined as a sequence of tasks that must be
completed to attain a certain outcome. According to the
Project Management Institute (PMI), the term Project
refers to ” to any temporary endeavor with a definite
beginning and end”. Depending on its complexity, it can
be managed by a single person or hundreds.
A project is a set of tasks that must be completed within a defined

timeline to accomplish a specific set of goals. These tasks are
completed by a group of people known as the project team, which
is led by a project manager, who oversees the planning,
scheduling, tracking and successful completion of projects.
2
Project Definitions
• “investment project” means a collection of proposals for
the expenditure of mid-term or long-term capital to carry
out investment activities in a particular administrative
division over a certain period of time. (Law on Investment
2020)
“construction investment project” means a collection
of proposals concerning use of funds for construction,
repair or renovation of a construction work with a
view to developing, maintaining and raising the
quality of the work or product or service within a
given duration at specified costs. (The Construction
Law 2020)
The Roles of Project
Realizing Investment Opportunities

Capital Mobilization
Identifying and Minimizing Risks
Project Financing
Public Private Partnership
3
Project Classification
By Project Planning Steps
By Characteristics
In Form
Under A Public-Private Contract
By Project Planning Steps

“construction investment pre-feasibility study report” means a document
presenting a preliminary study’s contents, including necessity, feasibility
and efficiency of construction investment, which serves as a basis for
decision on or approval for the construction investment policy.
“construction investment feasibility study report” means a
document presenting the contents of study on the
necessity for, feasibility and effectiveness of, construction
investment in accordance with the selected basic design
plan, which serves as a basis for consideration of, and
decision on, construction investment.
Economic - technical report on construction investment is

a document that presents the contents of the necessity,
feasibility and efficiency of construction investment
according to the design plan of construction drawings.
small scale, as a basis for considering and deciding on
construction investment.
4
By Characteristics
An independent project refers to projects whose
cash flows are not dependent on other projects.
Therefore, its approval or disapproval is unrelated
to the approval or disapproval of other projects. In
other words, choosing one project does not affect
other projects in the group.
Mutually Exclusive Projects is the term which is used generally
in the capital budgeting process where the companies choose
a single project on the basis of certain parameters out of the
set of the projects where acceptance of one project will lead to
rejection of the other projects.
Excluded Project means the acquisition, leasing, planning,
development, construction (including demolition,
rehabilitation, renovation and/or expansion of existing
buildings) and fit-out (but excluding any long-term and
equipment financing thereof) of the Corporate Headquarters
and the Distribution Center
In Form
“new investment project” means a project that
is executed for the first time or a project
independent from any other running project.
“expansion project” means an investment

project on development of a running project by
expanding the scale, improving the capacity,
applying new technologies, reducing pollution
or improving the environment.
“start-up project” means an investment project

that implements ideas on the basis of
exploiting intellectual property, technologies
and new business models and is able to grow
quickly.
10
5

PPP project is a set of proposals related to the
investment to provide public products and
services through the implementation of one or
the following activities:
a) Construction, operation and business of
infrastructure works and systems;
b) Renovation, upgradation, expansion,
modernization, operation and business of
available works and systems;
c) Operation and business of available
infrastructure works and systems.
11

The group of project contracts applying the mechanism for direct
collection of fees from users or underwriting for public products and
services, including:
a) BOT contract means the contract under which a PPP project
investor or enterprise is assigned the right to build and operate
infrastructure works and systems within a predetermined term; upon
expiry of such term, the PPP project investor or enterprise transfers
these works or systems to the State;
b) BTO contract means the contract under which a PPP project
investor or enterprise is assigned the right to build infrastructure
works and systems; after the construction is complete, the PPP
project investor or enterprise transfers these works or systems to the
State, and is accorded the right to operate these works or systems
within a specified period of time;
12
6

c) BOO contract means the contract under
which a PPP project investor or enterprise is
assigned the right to build, own and operate
infrastructure works and systems within a
predetermined term; upon expiry of such term,
the PPP project investor or enterprise
terminates the contract;
d) O&M contract means the contract under
which a PPP project investor or enterprise is
assigned the right to operate and manage part
or the whole of existing infrastructure works
and systems within a predetermined term;
upon expiry of such term, the PPP project
investor or enterprise terminates the contract.
13
The contents of a construction investment

feasibility study report
a) The necessity for investment, investment

policy, construction investment objectives,
construction locations and to be-used land
area, capacity and form of construction
investment;
b) The capability to ensure factors for project
implementation such as use of resources,
selection of equipment and technology, use of
labor, technical infrastructure, product
consumption, operation requirements,
implementation duration, plan on construction
ground clearance and resettlement (if any),
solutions to organizing management of project
implementation, work operation and use, and
environmental protection;
14
7
The contents of a construction investment

feasibility study report
c) Assessment of the project’s impacts related to

land recovery, ground clearance and resettlement;
protection of landscape and ecological
environment and safety in construction, fire and
explosion prevention and fighting, and other
necessary contents;
d) Total investment amount and capital raising,
financial analysis, risks, expenses for operation of
the work, evaluation of socio-economic efficiency
of the project; recommendations on coordination
mechanism, policies on incentives and support for
project implementation
15
PROJECT CYCLE
investment
preparation Initiating
pre-feasibility study
Planning
feasibility study
investment Implementing
implementation construction drawing design
construction Executing construction

complement
Closing
8
Appraisal Definitions
“appraisal” means the inspection and
assessment, by the investment decision-
maker, investor or specialized
construction agency, of necessary
contents in the course of preparing and
implementing a construction investment in
accordance with regulations laid down
herein, including the appraisal made by
the investment decision-maker or project
owner to issue the construction
investment decision and give approval for
construction design, and the appraisal
made by the specialized construction
agency to control the compliance with
laws and regulations by entities involved
in construction activities.
17
Project Appraisal Definitions

Project appraisal is a process of
evaluating a proposed project to
determine its feasibility, viability,
and potential. It involves a
comprehensive assessment of the
project's economic, financial,
technical, social, management,
and environmental aspects. The
purpose of it is to determine
whether the project is worth
investing in/suitable from a
financing angle and whether it
aligns with the organization's goals
and objectives.
18
9

Every project has certain phases in its development and implementation.
The appraisal stage of the project cycle should provide information and
analysis on a range of issues associated with the decision making of the
project. First, the administrative feasibility of project implementation
must be fairly assessed and the marketing and technical appraisals of
the project must be provided to evaluate its feasibility. Second, the
financial capability of the project to survive the planned duration of its
life must be appraised. Third, the expected economic contribution to the
growth of the economy must be measured based on the principles of
applied welfare economics and a series of assumptions used to
undertake this appraisal. Finally, an assessment must also be made to
determine if, and how, this project assists in attaining the socio-
economic objectives set out for the country, along with an analysis to
determine if this project is cost-effective in meeting these objectives.
19

Project appraisal is the process of assessing,
in a structured way, the case for proceeding
with a project or proposal, or the project's
viability. It often involves comparing various
options, using economic appraisal or some
other decision analysis technique. The entire
project should be objectively appraised for the
same feasibility study should be taken in its
principal dimensions, technical, economic,
financial, social and so far to establish the
justification of the project or project appraisal is
the process of judging whether the project is
profitable or not to client or it is a process of
detailed examination of several aspects of a
given project before recommending of some
projects.
20
10
Why did Appraisal need in Project?

• It is done for checking the viability of a project proposal.
• For detailed pre-investment analysis of the market and
technical feasibility; financial soundness, economic
desirability, and finally, measuring its investment worth.
• Decision-making for allocating scarce resources.
• To ensure scarce resources are put to the most effective
use.
• To determine various costs and benefits of proposed
actions.
• Helps to select the best project alternatives through
questioning proposals before resources are allocated.
• The feasibility study of the proposed project.
• Overall, leads to the project’s sustainability.
• Forms as the guideline for the new projects.
21
Stages in Project Appraisal and Approval
11
Project Appraisal Aspects

Marketing Technical Organizational
Financial
Economic
Social
23
Project Appraisal Viewpoints
Financial:
Economic:
Distribution
Basic Needs
State Budget
24
12
CHAPTER 2
Maketing – Technical – Human Resource
Requires: self-study
Detailed Appraisal
25
Maketing Appraisal
Customers and market segments
Supply and demand of project products
now and forecast in the future
Competitors
Competitiveness
Marketing strategy of the project
Sales policy and distribution channels
Product life cycle
Conclusion
26
13
Customers and Market Segments
Who will be the project's product consumers?

Which market segment?
Market share, customs, psychology, tastes and
preferences
Quality, price, design, specifications,
packaging, marketing, distribution
27
Supply and demand of project products now and

forecast in the future
• Basic or Essential goods: Supply and demand
forecasts are made by specialized regulatory
agencies or associations, reputable market
research organizations
• Popular/premium goods or services: Surveys
are conducted by investors or by professional
market research agencies and organizations
28
14
Competitors
Manufacturers of similar products in the

domestic market?
Importers of similar products
Project strengths and weaknesses
compare to competitors
29
Price
Quality, design, specifications, packaging,

marketing, distribution
Standards of importing country
30
15
Planning to introduce products, advertise,

promote, participate in fairs and exhibitions
Sales methods
After-sales service
Social Networks
31
Sales policy and distribution channels
Is it acceptable to sell
on credit?
Project product
distribution channel?
Can prices be pressured

or not?
32
16
Product life cycle
What
stage of
the
product
lifecycle
is the
project
product
in?
33
Conclusion
The project's annual consumption
volume
The unit selling price of the product and
the rate of increase or decrease of the
selling price over the years
Percentage (%) of credit sales in Annual
Project Revenue
Selling expenses (Fixed & Variable Costs)
34
17
Technical Appraisal
Location
Architecture and construction
Equipment and Technology
Materials
Energy
Production program
Environmental impact
Conclusion
35
Location
Compliance with the construction plan
Convenient in terms of traffic
Near the source of raw materials and
consumption market
The existing infrastructure is completely
The weather, climate, soil, and water are
suitable Năng lượng mặt trời, năng lượng gió, khí
Human resources are sufficient for the
recruitment needs of the project
ví dụ nguồn nhân lực về IT
36
18
Architecture and Construction

• Full compliance with regulations on management of
urban architecture promulgated by the People's
Committee of the province
• Suitability of the plant with selected equipment and
technology
• Ensure the conditions of industrial hygiene and
occupational safety
• Make sure that noise, temperature, dust, and light are
in compliance with regulations
• Satisfy fire protection requirements
• Is the construction progress consistent with the
machinery and equipment supply plan?
• Does the infrastructure meet the needs and progress
of construction of works and work items, installation
of machinery and equipment, and production lines?
37

Can the product quality standards be
achieved as set out in the project?
Does the design capacity guarantee
the maximum expected production
volume over the life of the project?
The production line must be
synchronized
Equipment delivery time and
installation must be consistent with
the project implementation schedule
Reputation of equipment suppliers
38
19

Is the technology transfer method
reasonable?
Does the project owner have the ability to
operate the technology?
Is the cost of technology transfer
reasonable?
Technology must be advanced or modern
Does technology allow project owners Ví dụ: đầu tư thiết kế mở, đầu tư có thể tái sử
dụng được (không nên đầu tư quá nhiều vào bê
flexibility in product restructuring? tông hóa)
Why did the project owner choose that
technology?
39
Materials
Material norm and

Demand per year
Sources and Availability
Quality and Price
40
20
Material norm and demand per year

Nhu cầu nguyên liệu = Định mức * Sản lượng
Raw material demand = Norm * Output
Tồn kho nguyên liệu = Nhu cầu nguyên liệu * Số ngày tồn kho nguyên liệu
Raw material inventory = Material demand per
day * Days of Raw material inventory
41
Sources and Availability

Self-produced
Buy from local supplier
Import
Q?: Which projects usually have all 3 sources

mentioned above?
42
21
Quality and Price
How to appraise the quality of raw materials?
How to appraise raw material price?

so sánh giá bán giữa các bên bán với nhau
43
Energy supply
Energy supply capacity in the
project area is expected to
operate?
When is an agreement or
commitment from local energy
companies required?
Is it necessary to invest in energy

production facilities? 44
Ví dụ về các dự án phải tự sản xuất ra điện: cột phát sóng, nhà máy sản xuất luyện thép, gang
22
Production program
Current market demand and forecast
demand for the project's products in the
future
The ability to provide inputs, especially for
imported materials
Capacity to organize and operate production
Capital capacity
Technical equirements, workers' skills.
45
Environmental Impact Assessment

This environmental impact assessment report
must be approved by the environmental
authorities
Fully comply with regulations on fire and

explosion
căn cứ vào
46
23
Conclusion
Total investment required for the project
Design capacity and operating capacity
Annual project inventory rate of finished
products
Norms and unit prices of inputs in the
project's operational phase
Average credit purchase period (days)
or percentage (%) of credit purchases
on the project's annual sales of raw
materials
Estimated operating time
47
Human Resource Appraisal
• Project management
• Production organization chart
• Personnel needs
• Labor supply and labor quality
• Salary
• Conclusion
48
24
Project management
Based on the scale, nature, capital sources and
conditions for implementing the construction
investment project, the investment decider shall decide
to apply one of the following forms of project
management organization:
a) Specialized construction investment project
management board or regional construction
investment project management board;
b) Single-project construction investment project
management board;
c) Affiliated professional apparatuses of project
owners;
d) Project management consultants
49
Production organization chart

• Attached to the identified project goals
• Lean apparatus to save costs
• Ensuring full implementation of functions
and tasks of the departments that make up
the organizational structure
• Flexibility to adapt easily when the business
environment changes
• Unified leadership (each level only follows
the leadership of a single direct level)
50
25
Personnel needs
• Indirect human resource needs are
divided into three levels: senior level,
middle level and employee level.
• Indirect personnel is determined by the
manning method
• Direct personnel is determined based on
the time norm and workers using
machine norm
51
Labor supply and labor quality
• Local or Migrant Workers?

• Trained or untrained workers?
• Trained or untrained workers?
Phân chia giữa đào tạo và chưa đào tạo để tiết kiệm tài nguyên cho công ty,
phân chia mức lương làm việc phù hợp
52
26
Salary
Depending on requirements on
qualifications, skills and experience
Wages must not be lower than the
minimum wage prescribed by the
government for each locality in each period
Regulations on payment of social
insurance, health insurance,
unemployment insurance and union dues
Training costs for workers
53
Conclusion
Human resource needs are divided into
direct and indirect personnel (senior
level, mid-level and employee level)
Salaries, wages, allowances, training
and employee benefits
Expenses are calculated on salary
according to government regulations
Management and operating costs during
the project's operational phase
Estimated time to build and install
equipment
54
27
CHAPTER 3
PROJECT CASH FLOW FORECASTING
Conventions
Principles of Project Cash Flow
Forecasting
Types of Project Cash Flows
Project Cash Flow Forecasting Method
Project Cash Flow Planning Process
Key Parameters of Project Cash Flow
55
ghi năm 1, 2,...không ghi năm 2023,2024 năm 1 là cuối năm 1, nên là chi cho 1 thời điểm trong năm thì quy ước chi vào cuối năm
Giai đoạn xây dựng và gđoạn hoạt động năm thanh lý được quy ước là mọi việc xử lý vào năm tiếp theo chứ không phải là năm nag
Conventions
Cash flows start with year 0

The year of liquidation is the year
following the last year of operation of
the project
Cash outflows and inflows occur at the
end of the year
Cash flows are not expressed in calendar
years
56
28
Principles of Project Cash Flow Forecasting

• Incremental Cash Flows
• After-tax Cash Flows
• Cash Flows Deverted from Existing Products
• Incidental or Synergistic Effects
• Working Capital Requirements
• Consider Incremental Expenses
Sunk Costs
• Sun Costs Are Not Incremental Cash Flows
• Account for Oportunity Costs
• Decided If Overhead Costs Are Truly
Incremental Cash Flows
57
Types of Project Cash Flows
Operating Cash Flow (OCF)/

Cash Flow From Operating (CFO)
Investing Cash Flow (ICF)/
Cash flow from investing (CFI)
Financing Cash Flow (FCF)/ hạn chế không sử dụng
FCF
Cash flow from financing (CFF)
58
29
Sự khác nhau của 3 quan điểm: Nguồn vốn đầu tư, nếu thẩm định dự án theo AEPV 100% vốn đầu từ là của chủ đầu tư hết,
quan điểm TIV tổng vốn bao gồm nhiều nguồn (vốn chủ và vốn nợ), Equity chỉ là nguồn vốn của cổ đông
Project Financial Appraisal Viewpoints

Các quan điểm thẩm định về mặt tài chính
All Equity Point of View AEPV
Total Investment Point of View TIV

Quan điểm tổng vốn đầu tư
Equity Point of View
59
3 quan điểm trên thể hiện nguồn vốn của: chủ đầu tư (chủ sở hữu dự án: thực tế là các công ty dự án), TIV (thường là
chủ nợ: thực tế là các ngân hàng), Equity (các cổ đông)
trường hợp xem xét tính hiệu quả của dự án, trong trường hợp ko có nợ
All Equity Point of View - AEPV
Purpose: To evaluate whether all the equity

invested in the project is still effective in the
absence of debt
Dòng tiền NCFAEPV = NOCF (non-interest tax shields ) +
hoạt động Dòng tiền ròng (ko có lá chắn thuế từ lãi vay)
ròng NICF
NOCF is net operating cash flow without the
interest tax shield
The project companies are project appraisers
from this perspective
(*) dòng tiền ròng là vào trừ ra
60
Tại sao chủ đầu tư lại đánh giá dự án hiệu quả là 100% vốn chủ ?
mục đích chủ đầu tư khi TDDA: xem dự án đó hđkd của dự án đó có hiệu quả hay không, để ra quyết định đầu tư. Để
tách hiệu quả HDKD từ đòn bẩy và lá chắn thuế, phải đặt ra giả định là dự án đó khi ko vay nợ thì có còn hiệu quả
không
Vì khi vay nợ NPV sẽ càng cao hơn, nên phải tách biệt khỏi30
đòn bẩy và lá chắn thuế để đánh giá dự án có hiệu quả ko
trong trường hợp có vay nợ

Total Investment Point of View - TIPV
Purpose: To evaluate the effectiveness of the

project in case of debt)
NCFAEPV = NOCF (interest tax shields ) + NICF
Dòng tiền ròng của HĐ (có lá chắn thuế và lãi vay)
NOCF is net operating cash flow with the interest
tax shield
The banks are project appraisers from this
perspective
61
Tại sao ngân hàng chỉ cho dự án vay 50-70% số vốn ban đầu, nhưng khi thẩm định lại thẩm định
toàn bộ 100% để thu nợ?
Ngân hàng là người đc ưu tiên thu tiền nợ của dự án trước các cổ đông (ngân hàng trước, cổ đông sau). Cổ đông chịu
rủi ro nhiều hơn ngân hàng, vì vậy chi phí vốn chủ cao hơn chi phí vốn nợ. Chính vì vậy, ngân hàng chỉ cho vay 1 phần,
và có thể thu nợ trước và nắm giữ tsan bảo đảm. Còn cổ đông là phần nắm giữ sau cùng
quan điểm cổ đông

Equity Point of View - EPV
Purpose: To evaluate whether the project's net

cash flow after debt payment can offset the cost
of equity and equity?
NCFEPV = NCFTIPV + CFF
Shareholders are project appraisers from this
perspective
Đối với cổ đông, họ sẽ đánh giá sau khi ngân hàng thu nợ thì
sẽ xem số tiền nhận lại có phù hợp với số vốn họ bỏ ra
không
62
31
trực tiếp: Dòng vào (Doanh thu - denta thay đổi trong các khoản phải thu) - dòng ra (Tiền mua nguyên vật liệu + Nhân
công + SX chung + CP bán hàng + Số dư từ mặt tối thiểu + Thuế (ko vay nợ) - Khoản chi trả cho nhà cung cấp )

(AEPV) Dòng tiền theo quan điểm AEPV
• Direct method:
• NOCF = Cash inflow - Cash outflow
• Cash inFlow = Revenue - ∆ Receivables from
customers
• Cash outFlow = Purchases + Labor Costs +
General operation cost + General &
administration expenses + selling expenses +
∆ minimum balance + Taxes (non-interest tax
shields ) - ∆ Payable to suppliers
• NICF = - Investment + Salvage
• NCFAEPV = NOCF + NICF
63

(AEPV)
Thu nhập hđ ròng sau thuế ( loại bỏ CP tài chính)
• Indirect Method:
• NOCF = EBIT*(1-t) + Depreciation
and Non-cash Expenses - ∆NWC
Dòng đầu tư• NICF = - Investment + Salvage

Lợi nhuận từ HĐKD* (1-Thuế) + Khấu hao và các chi phí ko cần tiền - Vốn
lưu động ròng
64
32
2 dòng tiền HĐ và ĐT kết hợp

AEPT HĐ (ko lá chắn) Lọc

(TIPV) có lá chắn thuế
nếu Ngân hàng thu nợ nhiều quá --> rủi ro thanh khoản
• Direct method:
• NOCF = Cash inflow - Cash outflow
• Cash inFlow = Revenue - ∆ Receivables from
customers
• Cash outFlow = Purchases + Labor Costs +
General operation cost + General &
administration expenses + selling expenses +
∆ minimum balance + Taxes (interest tax
shields ) - ∆ Payable to suppliers
TIPV
65
Dòng tiền chi ra TIPV, dòng tiền chi ra ko có lãi vay. CP lãi vay sẽ đưa vào dòng tiền tài trợ

(TIPV)
• Indirect Method:
• NOCF = EBIT*(1-t) + Depreciation
and Non-cash Expenses + interest
expenses - ∆NWC
• NCFAEPV
TIPV = NOCF + NICF
66
33
số cuối kỳ cao hơn đầu kỳ chứng tỏ bán chịu nhiều hơn

Mua chịu nguyên vật liệu - Khoản thay đổi: để tìm khoản thực chi trả cho nhà cung cấp

(EPV)
• NCFEPV = NCFTIPV + NCFF

(Principal + Principal and Interest
Payments);
• NCFEPV = NCFAEPV + Tax Shields +
Principal + Principal and Interest
Payments
67
Trong dự toán mức tín dụng: luôn luôn đặt ra Cash Balance để coi mức tối thiểu cần là bao nhiêu để chi trả cho nợ, ko
chi trả tiền cho cổ đông hết để duy trì tiền
Dự trữ tồn kho = Thời gian tồn kho mong muốn * Nhu cầu sử dụng / 1 ngày
COGS : Giá vốn
Why does interest

Tại sao khấu hao không expense not include
tính vào dòng tiền? Vì Project Cash Flow Forecasting Process cash flow of operation?
khấu hao không được chi
trả bằng tiền Vì: CP lãi vay đã được
tính trong dòng tiền tài
Lập gián tiếp: bảng Project type identification trợ rồi, nên nếu tính vào
KQHĐKD và khấu dòng tiền hoạt động nữa
hao tách riêng, và lập thì sẽ bị trùng là tính 2
thêm bảng VLĐ lần
Data preparation
Parameter & Intermediate

spreadsheet PP gián tiếp có 2 điểm
khác biệt
Ko có tính CP lãi vay, 1
cái EAT là tính CP lãi vay
Project Cash Flow Forecasting EBITAT = 80% lãi vay
sau thuế
Nhận xét chung:

AEPV OCF ko nợ
TIPV OCF có nợ
EPV: tính theo trực tiếp hết
34
Bảng thông số lấy từ những dữ liệu đã thẩm định ở từng hạng mục (cung cầu), nhập phải nhóm các thông số lại
Đất đai ko tính theo giá lạm phát. Nếu đất sử dụng làm suy thoái đất, phần đất thiệt hại tính vào giá trị của đất.
Project type identification
• What type of project is it?

• New project ?
• Expansion project ?
• Excluded projects ?
• The aim is to apply the incremental principle
69
Data preparation
• Investment plan
• Initial investment costs
• Sources of investment capital
• Investment schedule
• Operational plan
• Revenue - costs
• Working capital
• Debt financing
• Other parameters
70
35
Parameter & Intermediate spreadsheet
1) Parameter sheet
2) Intermediate spreadsheet:
Investment schedule
Revenue
Depreciation
Product cost
Cost of goods sold
Selling expenses
Administration costs
Loan and repayment schedule
Income statement
Working capital requirements
71
Project Cash Flow Forecasting
• All Equity Point of View – AEPV

• Total Investment Point of View – TIPV
• Equity Point of View - EPV
72
36
FOR EXAMPLE
73
Important parameters
• Interest
• Depreciation and non-cash expenses
• Salvage
74
37
CHAPTER 4
PROJECT EVALUATION CRITERIA
Payback Period (PP)

Discounted Payback Period (DPP)
Net Present Value (NPV)
Profitability Index (PI)
Internal Rate of Return (IRR) và
Modified (MIRR)
75
Payback Period
The payback period is the number of years needed to

recover the initial cash oulay related to an investment
76
38
For example
Year 0 1 2 3
NCF - 2.000 1.100 1.210 1.331
accumulated - 2.000 - 900 310
NCF
Hoàn vốn 1 năm thì thiếu 900, hoàn vốn 2 năm dư 310
Cách 2: Số năm thu hồi vốn hoàn toàn + Phần còn lại ở dòng tiền ở năm thu hồi vốn hoàn toàn /
 310 
PP   2  nam  1 nam 9 thang
 1.210
Cách 1: Payback period = Số năm trước khi hoàn vốn hoàn toàn + Phần số tiền chưa
thu hồi ở đầu năm thu hồi vốn hoàn toàn / số tiền ròng đã thu hồi vốn hoàn
toàn
Cách 1: (1 - 900/1100) = 1 năm 9 tháng
77
Số ô âm là chưa hoàn vốn, + thêm 1 là để chuyển nó hoàn vốn
The accep/reject for PP
• If PP less than the required PP, then

project is accepted
• Shorter PPs ear preferd over longer
PPs because shorter PP, the quicker
you get your money back
78
39
Drawbacks Hạn chế
•It also ignores the time value of

money and does not discount
these cash flow back to present.
•The accept/reject criterion
centers on whether the project’s
PP is less than or equal to the
firms maximum desired PP.
79
Positive Features
•It deals with CF, and therefore

focuses on the true timing of the
project’s benefits and cost
•It is easy to visualize, quickly
understood, ang easy to calculate
•The PP may make sense for the
capital constrained firm
80
40
Discounted Payback Period - DPP
The number of years it takes to

recapture a project’s initial outlay from
the discounted CF
81
For example
Year 0 1 2 3 4
NCF - 2.000 1.100 1.210 1.331 110

Discounted - 2.000 1.000 1.000 1.000
NCF
@10%
Accumulated - 2.000 - 1.000 0
Discounted
NCF
@10%
 0 
DPP   2  nam  2 nam
 1.000 
82
41
Disadvantages
•It depends on the discount

rate
• Cash flows occur after DPP
are not included in the
analysic
LS chiết khấu tăng thì thời gian hoàn vốn cũng tăng
Dòng tiền sau thgian hoàn vốn thì không được tính đến
83
For example
Year 0 1 2 3 4
Discounted -1.000 + 500 + 500 + 500 + 300
NCFA
Discounted -1.000 + 300 + 300 + 400 + 1.000
NCFB
DPP NPV
Project A 2 years 800

Project B 3 years 1.000
84
42
Net Present Value - NPV
Is equal to the present of its annual NCF minus

the investment initial outlay
CF
1 
CF
2  ... 
CF
n   n CF t
NPV  CF 0 
(1  k) 1 (1  k) 2 (1  k) n t  0 (1  r) t
CFt = the annual CF in time period t

r = cost of capital
n = the project’s expected life
85
For example
Year 0 1 2 3
NCF -2.000 1.100 1.210 1.331
1.100 1.210 1.331

NPV@10%  2.000     1.000
(1 10%) (1 10%) (1 10%)3
1 2
86
43
The accep/reject for NPV
NPV >= 0: accept

NPV <0: reject
87
Advantages/Disadvantages
It will increase the value of the firm

Estimating both the future CFs and
discount rate are both trivial
exercises
88
44
depends on the discount rate

Moá
i quan heägiöõ
a NPV vaøLSCK
NPV
400
335.87
300
200
167.96
100
19.71
0 LSCK
25% 30% 35% 40% 45% 50%
-100 (111.88)
-200
(229.28)
-300
(334.52)
-400
LS chiết khấu tăng --> NPV giảm
89
Chỉ số lợi nhuận
Profitability Index: PI luôn luôn là số dương
Is the ratio of the present value of the future CFs

to the initial outlay
Cách 1: PI 
PV of all the future annual CFs
IO
Cách 2: PI = 1 + NPV/ IO
90
45
For example
Year 0 1 2 3
NCF -2000 1.100 1.210 1.331

IO 2.000
PV of CFs @10% 1000 1.000 1.000
PI 1,5
PI = (1000+1000+1000)/2000 = 1.5
91
The accep/reject for NPV
PI >= 1: accept
PI <0: reject
92
46
Tỷ suất hoàn vốn/ Tỷ suất sinh lời

Internal Rate of Return: IRR
LS chiết khấu
the discount rate that equates the present value of the
project’s CFs with the project’s initial cash outlay
n CFt
NPV   t
0
t 0 (1  IRR)
93
The decision criterion for IRR
IRR >= cost of capital: accept

IRR < cost of capital: reject
94
47
Multiple IRR
Year 0 1 2
NCF - 20.000 64.000 - 48.000
95
MODIFIED INTERNAL RATE OF RETURN: MIRR
TV inf lows
PVoutflow 
1  MIRR n
• PVoutflows = the present value of the project’s cash

outflows
• TVinflows = the future value of the project’s cash
inflows at the end of the project’s life
96
48
For example
Year 0 1 2 3 4 Cộng
NCF - 1.500 +3.000 -2.250 +750 -

300
PVoutflows -1.500 -1.562 - -
@20% 145 3207
TVinflows @20% 5184 900 6084
MIRR 17,36%
97
Decision rules for IRR
MIRR >= required rate of return: accept

MIRR < required rate of return : reject
98
49
CHAPTER 5
THE PROJECT COST OF CAPITAL
Risk and The Cost of Capital for A

Project
The Capital Pricing Asset Model
The Cost of Capital for A Project
The Project Cost of Capital according
to Appraisal Point of Views
Risk and The Cost of Capital for A Project
• Each project has its own required return,

reflecting three basic elements:
1) The real or inflation-adjusted risk
free interest rate LS thực
2) An inflation premium
approximately equal to the amount
of expected inflation
3) A premium for a risk LS rủi ro
100
50
LS danh nghĩa đo lường bằng mức LS tiết kiệm 12 tháng (p/ánh thời giá của tiền)
Phần bù rủi ro phụ thuộc vào mức rủi ro của dự án
Mức LS yêu cầu được gọi là CP vốn (mức LS rào cản)

• The first two elements reflect the value time
of money
• The third component varie according to the
risks borned by the investors in the different
projects.
• This minimum or required return is the
project’s cost of capital and is sometimes
referred to as a hurdle rate
LS rào cản
101
• The cost of capital for a project depends

on the riskiness of the assets being
financed, not on the identify of the firm
undertaking the project.
• The risk required return trade-off is set
in the financial marketplace and is based
on the yields available to investors on
other investments with similar risk
characteristics
102
51

• The cost of capital for a project = The norminal
riskless (the return on Treasury securities) + a risk
premium dựa trên mức sinh lời của trái phiếu chính phủ
• The real risk free interest rate and the inflation
premium are incorporated in Treasury yields
• A risk free return is the rate return on a long term
Treasury bond of the same maturity as the project
• According to CAPM, intelligent and risk averse
investors will seek to diversify their risks. Theo CAPM ko chấp nhận rủi ro
Consequently, the only risk that will be rewarded
with a risk premium will be the asset’s systermatic
or unavoidable as measured by the assets’s beta
coefficient
103

Assets risk premium (%) = Asset beta * Market premium
= βi.(rm - rf)
Where:
• Βi= asseti’s is beta coefficient
• rm = required return on the market fortfolio
• rf = risk free interest rate.
The cost of capital for project i = Risk free interest rate +
Projcet risk premium
ri = rf + βi.(rm - rf)
104
52
Estimating the Maket Risk Premium

• The market risk premium, also known as the equity
risk premium, is ordinarily assumed to equal the
average historical the difference between the return
on the stock market and the average return on long
term Treasury bonds.
• The return on the market is usualy taken to be the
return on e well-diversified portfolio of stocks,
such as NYSE index or S&P500
• The historical equity risk premium does not
measure the forward looking equity risk premium,
that is, the risk premium that equity investors
expect to realize on stocks bought today.
105
Estimating the project beta

• A history of past project returns or future project
returns relative to predicted market returns does
not exist, therefore, find a firm or preferable, a
portfolio of firm – that shares similar risk
characteristics and use the firm’s beta to proxy for
the project beta.
• A number of services provide estimated betas for
a broad range pf companies
• Estimation error can be reduced by computing the
average stock beta for a portfolio of similar firms
instead of basing the project beta estimate on a
one –firm sample
106
53
Financial Structure and Appropriate

Discount Rates
The firms finance their investments on an all
equity basic, the beta for a firm’s common
stock, its equity beta, will equal the beta for
the firm’s existing assets, its asset beta.
Most firms, however, finance their
investments with both debt and equity, the
firm’s equity beta will exceed its asset beta.
βa = βe/[1+(1-t)D/E] Ko được tự tính, phải lấy dữ liệu
βe = βa[1+(1-t)D/E]
107
The Cost of Capital for A Project

The cost of equity capital
The cost of debt capital
The cost of preferred stock
Flotation costs CP vận hành
108
54
The cost of equity capital
•The Capital Pricing Asset Model CAPM

•The dividend Growth Model Ko học
109
The cost of debt capital
The cost of debt capital = kd(1 - t)

•kd is interest rate on new debt sold
at par
•t is the firm’s tax rate
110
55
The Cost of Preferred Stock
kp = PD/Ps
• PD is the preferred dividend
•Ps is the price per share of
preferred stock
111
Flotation costs
DT gộp - CP bán hàng = Ròng
• If flotation costs are 6% of gross
process, then the firm must sell
$10.630.000 of stock to obtain
$10.000.000 it needs ($10.630.000
*0,94 = $10.000.000)
112
56
The Project Cost of Capital according

to Appraisal Point of Views
• All Equity Point of View – AEPV

• Total Investment Point of View – TIPV
• Equity Point of View - EPV
113
The Project Cost of Capital according to

All Equity Point of View – AEPV
k0 = we ke + wd kd (1-t) + wp kp
Where
• we = proportion of equity in the firm of
target capital structure
• wd: = proportion of debt in the firm of
• wp = proportion of preferred stock in the
firm of target capital structure
114
57

Total Investment Point of View – TIPV
k0 = we ke + wd kd + wp kp
Where
• we = proportion of equity in the firm of
• wd: = proportion of debt in the firm of
• wp = proportion of preferred stock in the
firm of target capital structure
115

Equity Point of View - EPV
re = rf + βE.(rm - rf)
116
58

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Nguyễn Hoàng Vĩnh Lộc

PRESENTED BY: LOC NGUYEN HOANG VINH

• Overview of Project Appraisal

A project is a set of tasks that must be completed within a defined

The Roles of Project

Realizing Investment Opportunities

By Project Planning Steps

Economic - technical report on construction investment is

“expansion project” means an investment

“start-up project” means an investment project

Under A Public-Private Contract

Under A Public-Private Contract

Under A Public-Private Contract

The contents of a construction investment

a) The necessity for investment, investment

The contents of a construction investment

c) Assessment of the project’s impacts related to

construction Executing construction

Project Appraisal Definitions

Project Appraisal Definitions

Project Appraisal Definitions

Why did Appraisal need in Project?

Stages in Project Appraisal and Approval

Project Appraisal Aspects

Project Appraisal Viewpoints

Customers and Market Segments

Who will be the project's product consumers?

Supply and demand of project products now and

Manufacturers of similar products in the

Quality, design, specifications, packaging,

Standards of importing country

Planning to introduce products, advertise,

Sales policy and distribution channels

Can prices be pressured

Product life cycle

Architecture and Construction

Equipment and Technology

Equipment and Technology

Material norm and

Material norm and demand per year

Sources and Availability

Buy from local supplier

Q?: Which projects usually have all 3 sources

Quality and Price

How to appraise the quality of raw materials?

How to appraise raw material price?

Is it necessary to invest in energy

Environmental Impact Assessment

Fully comply with regulations on fire and

Human Resource Appraisal

Production organization chart

Labor supply and labor quality

• Local or Migrant Workers?

Cash flows start with year 0

Principles of Project Cash Flow Forecasting

Types of Project Cash Flows

Operating Cash Flow (OCF)/

Project Financial Appraisal Viewpoints

All Equity Point of View AEPV

Total Investment Point of View TIV

Equity Point of View

Purpose: To evaluate whether all the equity

trong trường hợp có vay nợ