PROJECT FEASIBILITY STUDY

 Refers to the systematic gathering and

analysis of data which aims to find out the
viability of the proposed business
undertaking.
PROJECT FEASIBILITY STUDY

 Generally, it involves:
a. Collection of data which are relevant to all
aspects of the undertaking
b. Evaluation and analysis of the data gathered
c. Formulation of recommendation
PARTIES BENEFITED BY THE STUDY
1. Proponents/ Promoters/
Organizers of new projects
 - the feasibility would serve as a basis for
ascertaining the practicability or workability
of proposed projects
2. Creditors

 -the feasibility study serves as a basis for the

creditors to decide whether or not to provide
financial assistance and to determine the
appropriate terms and conditions of such
assistance
3. Stockholders/Investors

 -the feasibility would help them decide

whether to invest in the project or not
4. Management of existing
firms
 - the study would help them ascertain the
feasibility of expansion programs
 -the study would also serve as a basis in
deciding on the possibility of taking over
existing business, as well as the extent of the
capital outlay required
5. Government
instrumentalities
 - the study helps them evaluate the project’s
social desirability and to check if the project
meets the applicable legal requirements, as
well as to determine the level or extent of
incentives that may be granted
6.National economy as a
whole
 - a project study assists in minimizing the risk
of failure of business ventures
 -wastage of valuable resources is reduced,
thereby accelerating economic growth
MAJOR ASPECTS OF A PROJECT
STUDY
A. MANAGEMENT

 The study of management aspects assists in the

selection of business structure, personnel, setup,
and internal policies of the enterprise for an
effective operation
B. MARKETING

 This ascertains the future demand for the product.

It involves the study of current and projected
supply and demand setup.
C. TECHNICAL

 The study of technical aspect 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.
D. TAXATION

 This covers the study of tax effects, as well as legal

tax saving measures and other government
incentives applicable to the project.
E. LEGAL

 Various legal aspects are studied to determine if

requirements are met and possible incentives and
protection are availed of.
F. FINANCIAL

 This quantifies the result of marketing, technical,

taxation, and legal phases and expresses in peso
terms the possible profitability of the project.
G. SOURCES OF FINANCING

 It provides a study of the possible sources of

financing that can be tapped to carry out the
project
H. PROFITABILITY

 It weighs the ratio of capital outlay in relation to

profit that can be obtained.
I. ECONOMIC BENEFITS OR
SOCIAL DESIRABILITY
 This involves a study of the project’s contribution
to the nation, considering both the economic and
environmental aspects.
FEASIBILITY STUDY GUIDELINE
I. SUMMARY OF PROJECT

 A. Name of firm
 B. Location: head office/factory
 C. Brief description of the project
 1. History of business
 2. Nature or kind of industry
 3. Type of organization
 4. Officers of the business and their qualifications
II. ECONOMIC ASPECT

 A. General Market Description

1. Market Description
2. Demand
3. Supply
4. Competitive position
1. MARKET DESCRIPTION

 a. areas of dispersion
 b. methods of transportation and existing
rates of transportation
 c. channels of distribution and general trade
practices
2. DEMAND

 a. consumption for past ten years

 b. major consumers of the product
 c. projected consumption for the next five
years
3. SUPPLY

 a. supply for past ten years, classified as to

source – imported or locally produced.
- for imports, specify the form in which goods are
imported, the prices and the brand
- for locally produced goods, the companies
producing them, their production capacities, brands,
and market shares shall be specified
 b. factors affecting trends in past and future
supply
4. COMPETITIVE POSITION

 a. Selling price – include a price study

indicating the past domestic and import
prices, the high and low prices within the
year, and the effect of seasonality, if any

 b. Competitiveness of the quality of the

product
B. Marketing Program

 1. Description of present marketing practices of

competitors.
 2. proposed marketing program of the project
describing the selling organization, the terms of
sales, channels of distribution, location of sales
outlets, transportations and warehousing
arrangements and their corresponding costs.
 3. Promotion and advertising plans, including
costs.
 4. Packaging
C. Projected Sales

 Expected annual volume of sales for the next five

years considering the demand, supply,
competitive position, and marketing program.
D. Contributions to the
Philippine Economy
 1. Net annual amount of dollars earned or
saved, and the basis used
 2. Labor employed
 3. Taxes paid
III.TECHNOLOGICAL
FEASIBILITY
 A. Products

1. Description of the products, including

specifications of their physical, mechanical
and chemical properties

2. Uses of the products

B. Manufacturing Process

 1. Description of the process showing

detailed flowcharts indicating material and
energy requirements at each step and normal
duration of the process
 2. Alternative processes considered and
justification for adopting such processes
 3. Technological assistance used and
contracts, if any
C. Plant Size and Production
Schedule
 1. Rated annual and daily capacity per shift,
operating days per year, indicating factors
used in determining capacity
 2. Expected production volume for the next
years, considering start-up and technical
factors
D. Machinery and Equipment
 1. Machines and equipment layout indicating the
floor plan
 2. Specifications of the machinery and equipment
required, indicating rated capacities of each piece
 3. List of machineries and equipment to be bought
and origin as to local or imported
 4. Quotations from suppliers, machinery guarantees,
delivery dates, terms of payments and other
arrangements
 5. Comparative analysis of alternative machinery
and equipment in terms of cost, reliability,
performance and spare parts available
E. Plant Location

 1. Location map of the plant

 2. Desirability of location in terms of distance
from the source or raw materials and market
and other factors and a comparative study of
different locations, indicating advantages and
disadvantages (if new project)
F. Plant Layout

 Description of the plant layout, drawn to scale

G. Building and Facilities

 1. Types of building and costs of erection

 2. Floor area involved
 3. Land improvements, such as roads,
drainage, etc., and their respective costs
H. Raw Materials

 1. Description and specifications of their

physical, mechanical and chemical properties
 2. Current and prospective
I. Utilities

 Electricity, fuel, water, steam, and supplies

indicating the uses, quantity required, availability,
and tentative sources and cost
J. Waste Disposal

 1. Description and quantity of waste to be

disposed of
 2. Description of the waste disposal method
 3. Methods used in other plants
 4. Cost of waste disposal
 5. Clearance from proper authorities or
compliance with legal requirements
K. Production Cost

 Detailed breakdown of production costs,

indicating the elements of cost per unit of output
L. Labor Requirements

 Detailed breakdown of the direct and indirect

labor and supervision required for the
manufacture of the products indicating
compensation, including fringe benefits
IV. FINANCIAL FEASIBILITY

 A. For existing projects

 B. For new projects
FINANCIAL STUDY
STEPS IN FINANCIAL STUDY

 A. Determine the specific financing

requirements of the project with respect to
types and cost of the assets to be acquired
 B. Identify the alternative sources of
financing, including the terms and conditions,
the effective cost and the maximum amount
of financing from each source
 C. Ascertain the desirable debt-equity ratio
 D. Establish the project‘s financial policy
MAJOR PARTS OF THE
FINANCING STUDY
 1. Statement of assumption
 2. Projected financial statements
 3. Possible sources of outside financing
 4. Details of various amounts contained in the
projected financial statements
 5. Analysis of financial projections
1. Assumptions

 - statements of possible future behavior of

certain factors affecting a project
 Examples:
 Sales volume, selling price, distribution media
 Plant location, capacity and requirements
 Taxes
 Foreign exchange rate and price level changes
 Project timetable
2. Projected financial
statements
 - used to evaluate the results of the financial
projections as to the project’s profitability,
liquidity and solvency, as well as its ability to
withstand difficulties.

 - projected balance sheet

 -projected income statement
 -projected cash flow statement
3. Possible sources of
financing
 A. Internal source of financing
 - funds obtained within the firm principally
through earnings and depreciation

 B. External source of financing

 - funds furnished by owners (equity) and creditors
(debt)
CLASSIFICATION OF FUNDS

 1. Short term funds - will be needed one year

or less
 Possible sources:
 Trade credit
 Commercial banks and other financial institutions
 Advances from customers
 Loans derived from relatives, friends, directors,
stockholders and officers
CLASSIFICATION OF FUNDS

 2. Intermediate funds – will be needed

between one to five years
 3. Long term funds – will be needed for five
years or more
 Possible sources:
 Issuance of capital stocks
 Issuance of bonds
 Retention of earnings
 Depreciation
 Suppliers/manufacturers of machinery and equipment
 Long-term loans from banks and other financing institutions
FACTORS CONSIDERED WHEN
OBTAINING LONG-TERM FUNDS

 1. Control
 Common stocks may have voting rights
 Preferred are usually non-voting
 Creditors share no direct participation in the
management of the firm, except to the extent that
restrictions are included in loan agreements
FACTORS CONSIDERED WHEN
OBTAINING LONG-TERM FUNDS
 2. Cost
 Flotation costs of stocks and bonds
 Dividend requirements when shares of stocks are
issued
 Dividends are not tax deductible
 Interest expense on loans is tax deductible
FACTORS CONSIDERED WHEN
OBTAINING LONG-TERM FUNDS
 3. Risk
 Debt financing entails greater risk than equity
financing because debt obligations have definite
maturity dates and interest is a fixed charge which
must be paid even when profits decline
 Long-term bonds entail less risk than short-term
notes because short-term notes must be renewed
periodically and renewals are subject to the
uncertainty of future interest rates and availability of
funds
SENSITIVITY ANALYSIS

 Feasibility studies involve projected data, developed

under specific assumptions. Uncertainty is therefore
an available element

 Sensitivity analysis can be used to minimize the

effect of uncertainty. It is used to determine the
impact of a change in a factor influencing a
projected result.

 Example: How will profit change if the projected

sales volume is changed by 5%, 10%, 15%,20%?
ATTRIBUTES OF A GOOD
FEASIBILITY STUDY
 1. Comprehensive – the study must have
adequate information to meet the needs
of the user or users, areas covered must be
clearly defined and well-managed
 2. Objective – it must present / reflect both
the positive and negative implications
 3. Simple – the report should be easy to
understand; if technical terminologies are
indispensable, explanation should likewise be
included