Definitive design for the improvement and extension of drinking water networks in the urban center of the General

Proaño parish,
Morona canton.

ECONOMIC AND FINANCIAL VIABILITY REPORT.

1.1. ECONOMIC AND FINANCIAL VIABILITY.

This project seeks to improve the quality of life and especially improve the health
conditions of its beneficiaries.

Due to the fact that it is a project that includes an investment that will not have financial
profitability for the investor (State); We can talk about a project basically aligned with
pursuing a social benefit.

The Internal Rate of Return (IRR) and the Net Present Value (NPV) are indicators that
determine the financial profitability of a project, and are used to decide on the acceptance
or rejection of an investment project. These indicators seek to measure the financial
performance that the project will have in the future, however, when talking about social
projects, the State will not receive revenue for the effect, but only the effect of the
investment can be reflected in the improvement of the quality of life of the beneficiaries.

1.1.1. METHODOLOGY USED TO CALCULATE THE TOTAL INVESTMENT,

OPERATION AND MAINTENANCE COSTS, INCOME AND PROFITS.

The methodology used to calculate the total investment in civil works, the operation and
maintenance costs, and the environmental management plan, as well as the benefits of
the Drinking Water Supply Project, were done by obtaining quantities and unit prices for
each of the activities that will be carried out in the execution of the project according to
what is established in this study.

The cost of materials, labor and equipment are those that currently govern the national
market and include their transportation by air, river and land to the project site.

The benefits of the projects are related to the reduction of water-borne diseases due to the
availability of water suitable for human consumption, therefore the benefits are associated
with the reduction of the costs that the inhabitants of KACHIK - and the State invest in the
remediation of diseases of water origin, as well as the time recovered by the beneficiaries
to carry out productive activities.

1.1.2. IDENTIFICATION AND VALUATION OF THE TOTAL INVESTMENT,

OPERATION AND MAINTENANCE COSTS, INCOME AND PROFITS.

1
Definitive design for the improvement and extension of drinking water networks in the urban center of the General Proaño parish,
Morona canton.

Project Costs.

a) Cost of Civil Works, Environmental Management Plan and Inspection: The

Cost of the construction of the Civil Works and Environmental Management Plan is found
in the annexes of the budget, which also includes the table of quantities and prices, the
schedule. valuation of jobs, the polynomial formula and unit price analysis. The following
table summarizes the costs.

Table 1: Costs of civil works and inspection

DESCRIPTION COST
CIVIL WORKS AND ENVIRONMENTAL
MANAGEMENT PLAN 356,380.61
INSPECTION (WILL BE CARRIED OUT BY
DIRECT ADMINISTRATION) 0.00
TOTAL: 356380.61

b) Operation and maintenance cost

The calculation of the operation and maintenance costs of the project during the 20-
year duration and with an annual growth of 3%, the calculation is found in table 28,
and its summary in the following table.

Table 2: Administration, operation and maintenance costs

OPERATION
COSTS
No. YEAR MAINTENAN
CE MY
ENTITY
2016
1 2017 21384.89
2 2018 23138.14
3 2019 25073.75
4 2020 27155.15

5 2021 29411.33

6 2022 31866.68

7 2023 34528.87

8 2024 37420.69
9 2025 40557.03
10 2026 43964.24
11 2027 47665.81

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 Definitive design for the improvement and extension of drinking water networks in the urban center of the General Proaño parish,
Morona canton.

12 2028 51681.93

13 2029 56050.98
14 2030 60792.33
15 2031 65944.20
16 2032 71536.44
17 2033 77619.63
18 2034 84224.11
19 2035 91401.82
20 2036 99209.38

Project Benefits.

The economic benefits derived from the drinking water project for KACHIK - include
resource savings for the population in:

- Carrying water
- Reduction of medical expenses due to water-related diseases.
- Days not worked due to water-related illnesses.

Due to the improvement in water quality that improves the health and living conditions of the
inhabitants of the sector.

The project benefits 112 people, and according to the growth rate (3.67%), at the end of the
useful life of the project the community will have 291 inhabitants.

The following table determines the economic benefits of the project:

Table 3

QUANTIFIED BENEFITS PER WATER QUALITY IMPROVEMENT PROJECT

cost of each consultation 10.00

prescription cost per
consultation 10.00

cost per mobilization 4.00

exams per year 2.00
cost of each exam 4.00
times they visit the doctor
per year 3.00
PEA 0.49
total expenditure Here you must multiply the number of days that they visit the doctor annually by the daily
inhabitant/year 62.00 value that the worker earns.

It is worth mentioning that the following parameters were considered to calculate the economic benefits:

3
Definitive design for the improvement and extension of drinking water networks in the urban center of the General Proaño parish,
Morona canton.

1. Medical consultation: the population with health problems multiplies with the cost of medical consultation (USD. 10.00) and by the
number of times they visit the doctor annually (3).

2. Exams: the population with a health problem is multiplied by the number of exams per year (2) and by the cost of each exam (USD.
4.00).

3. Medical Prescription: the population with health problems multiplies with the cost of the prescription (USD. 10.00) and by the
number of times they visit the doctor annually (3).

4. Transportation: the population with health problems multiplies with the cost of mobilization (USD. 6.00) and by the number of
times they visit the doctor it cancels (3).

5. By time not worked: the population with health problems is multiplied by the economically active population of the Morona canton
(0.49) and by the annual expenditure per inhabitant (USD. 62.00).

PERCENTAGE OF POPULATION AFFECTED

20.00%
WITH THE DRINKING WATER PROBLEM

QUANTIFIED BENEFITS PER WATER QUALITY IMPROVEMENT PROJECT

Table 4

DETERMINATION OF BENEFITS

POPULATIO SAVINGS IN MEDICAL EXPENSES (USD) FOR TIME

POPULATI TOTAL
YE N WITH CONSULT RECIPE NOT
ON BENEFITS
AR HEALTH ATION EXAMS MEDICA TRANSPORT WORKED
SERVED (USD)
PROBLEMS MEDICAL L (USD)

2014 3,225.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2015 3,508.16 702 21,048.93 5,613.05 21,048.93 8,419.57 21,276.40 77,406.88

2016 3,816.17 763 22,897.03 6,105.87 22,897.03 9,158.81 23,144.47 84,203.20
2017 4,151.23 830 24,907.38 6,641.97 24,907.38 9,962.95 25,176.55 91,596.24
2018 4,515.71 903 27,094.25 7,225.13 27,094.25 10,837.70 27,387.05 99,638.39
2019 4,912.19 982 29,473.13 7,859.50 29,473.13 11,789.25 29,791.64 108,386.65
2020 5,343.48 1069 32,060.87 8,549.57 32,060.87 12,824.35 32,407.34 117,902.99
2021 5,812.64 1163 34,875.81 9,300.22 34,875.81 13,950.33 35,252.71 128,254.88
2022 6,322.99 1265 37,937.91 10,116.78 37,937.91 15,175.16 38,347.89 139,515.65
2023 6,878.14 1376 41,268.86 11,005.03 41,268.86 16,507.54 41,714.84 151,765.13
2024 7,482.04 1496 44,892.26 11,971.27 44,892.26 17,956.91 45,377.40 165,090.11
2025 8,138.97 1628 48,833.81 13,022.35 48,833.81 19,533.52 49,361.54 179,585.02
2026 8,853.57 1771 53,121.41 14,165.71 53,121.41 21,248.57 53,695.48 195,352.58
2027 9,630.91 1926 57,785.47 15,409.46 57,785.47 23,114.19 58,409.94 212,504.54
2028 10,476.51 2095 62,859.04 16,762.41 62,859.04 25,143.62 63,538.33 231,162.44

4
Definitive design for the improvement and extension of drinking water networks in the urban center of the General Proaño parish,
Morona canton.

2029 11,396.34 2279 68,378.06 18,234.15 68,378.06 27,351.22 69,117.00 251,458.50

2030 12,396.94 2479 74,381.66 19,835.11 74,381.66 29,752.66 75,185.47 273,536.56
2031 13,485.39 2697 80,912.37 21,576.63 80,912.37 32,364.95 81,786.76 297,553.06
2032 14,669.41 2934 88,016.47 23,471.06 88,016.47 35,206.59 88,967.64 323,678.22
2033 15,957.39 3191 95,744.32 25,531.82 95,744.32 38,297.73 96,778.99 352,097.17
2034 17,358.44 3472 104,150.67 27,773.51 104,150.67 41,660.27 105,276.19 383,011.30
1050639.70
TOTAL 1050639.709 280170.589 9 420255.8835 1061993.622 3,863,699.51
Be/Ce 10.84

1.1.3. FINANCIAL AND/OR ECONOMIC FLOWS.

To prepare the economic and financial flows, the costs and benefits of the project were
considered, taking into account that its useful life is 20 years. The following table shows
the flow at efficiency price.

Board 1

FINANCIAL INDICATORS

OPERATION COSTS
COS TOS I
No. YEAR BENEFITS MAINTENANCE MY NET FLOW
NVERS I ON
ENTITY

201
356,380.61 -356,381
6
201
1 77,407 21,385 56,022
7
201
2 84,203 23,138 61,065
8
201
3 91,596 25,074 66,522
9
202
4 99,638 27,155 72,483
0
202
5 108,387 29,411 78,975
1
202
6 117,903 31,867 86,036
2
202
7 128,255 34,529 93,726
3
202
8 139,516 37,421 102,095
4
202
9 151,765 40,557 111,208
5
202
10 165,090 43,964 121,126
6
202
11 179,585 47,666 131,919
7
202
12 195,353 51,682 143,671
8
202
13 212,505 56,051 156,454
9
203
14 231,162 60,792 170,370
0
203
15 251,458 65,944 185,514
1

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 Definitive design for the improvement and extension of drinking water networks in the urban center of the General Proaño parish,
Morona canton.

203
16 273,537 71,536 202,000
2
203
17 297,553 77,620 219,933
3
203
18 323,678 84,224 239,454
4
203
19 352,097 91,402 260,695
5
203
20 383,011 99,209 283,802
6
GO 12.00% $ 422,088.07

GO $ 422,088.07
PUL
23.352%
L

1.1.4. FINANCIAL AND/OR ECONOMIC INDICATORS

The following indicators were analyzed with the financial and economic flows:

Net present value (NPV).

Internal rate of return (IRR)

The efficiency price indicators obtained are:

NPV 12% 422,088.07

IRR(e) 23.35%

According to the indicators presented, the project is economically and financially profitable,
since it has a positive NPV and an IRR(e) below the minimum rate required (12%) by
international organizations such as the BEDE and IDB.

To calculate the indicators described above, the following formulas have been used:

Where:
i: interest rate
V PN: net present value

6
 Definitive design for the improvement and extension of drinking water networks in the urban center of the General Proaño parish,
Morona canton.

Where:
Vt: Cash flows in each period t.
I 0 : Value of the initial investment outlay.
n: number of periods considered.

Where:
Be: Economic benefits
Ce: Economic cost

Cost Benefit Ratio = 10.84

The Cost Benefit Ratio can be verified to be greater than 1 for this reason the project is
viable.

1.1.5. ECONOMIC EVALUATION.

The economic net present value is a procedure that allows calculating the present value of a
future cash flow at the opportunity rate (12% in our case), caused by the investment, it is
one of the most widely used criteria in the evaluation of investment projects, when their
value is positive, it is recommended that the project be executed. In our case it is $
422,088.07 dollars.

The study of the Economic Internal Rate of Return TIRE, gives us the guidelines to see the
goodness of the study at the time it is executed, the internal rate of return -economic- shows
us the benefits of the project but in percentages and these must exceed the opportunity cost
of money over time which is 12%, according to the results (23.35%) the IRR does not
exceed the value.

The results of the calculation of the three indicators allow us to determine that the
project is economically viable.

Being a social project, it has not been considered necessary to justify the project
financially, but without a doubt the project is justified on an economic level.