BA -2301

PROJECT MANAGEMENT

By
Tanushree Bose
 REVIEW OF LAST CLASS

 Feasibility Study
- Economic and Market Analysis

- Technical Analysis

- Environmental Impact Analysis

 CONTENTS OF PRESENTATION
 Feasibility Study

- Financial Analysis
- Pay Back Period (PBP)
- Return On Investment (ROI)
 FEASIBILITY STUDY

Financial analysis:

 The Financial Analysis, examines the

viability of the project from financial or
commercial considerations and indicates the
return on the investments.
 FEASIBILITY STUDY

Financial analysis:

 Some of the commonly used techniques for

financial analysis are as follows:
• Pay-back period.

• Return on Investment (ROI)

• Net Present Value (NPV)

• Profitability Index(PI)/Benefit Cost Ratio

• Internal Rate of Return (IRR)

 FEASIBILITY STUDY

Financial analysis:
Pay-back period:
 Payback method helps in revealing the
payback period of an investment.

 Payback period (PBP) is the time (number

of years) it takes for the cash flows of
incomes from a particular project to cover
the initial investment.

 When a CFO faces a choice, he will prefer

the project with the shortest payback period.
FEASIBILITY STUDY
 FEASIBILITY STUDY

Financial analysis:
Pay-back period:

Example1. (Uniform annual return)

A farmer has invested about Rs. 20000/- in constructing a fish pond and gets annual
net return of Rs.5000/- (difference between annual income and expenditure).

The pay back period for the project is 4 years (20000/ 5000).
 FEASIBILITY STUDY

Financial analysis:
Pay-back period:

Example 2: (Varying Annual Return)

In a project Rs.1,00,000/- an initial investment of establishing a horticultural orchard.

The annual cash flow is as under.
 FEASIBILITY STUDY
Financial analysis:
Return on Investment (ROI):

 Return on investment measures the gain or loss made on an investment relative to

the amount invested and is calculated using a simple formula

i.e net income divided by the original capital cost of investment.

 The ROI calculation is done to analyze the performance of investment

 FEASIBILITY STUDY
Example 1: An investor buys $10,000 of stocks and sells the shares 1 year later
with the amount $12,000. The net profit from an investment is $2,000 and ROI
is as follows:-

Return on Investment :
 FEASIBILITY STUDY

Hence,
From Calculation Return on Investment (ROI) will be :
 FEASIBILITY STUDY

Return on Investment (ROI):

 Both the pay-back period and ROI are simple ones and more suited for quick
analysis of the projects and sometimes provide inadequate measures of project
viability.

 It is desirable to use these methods in conjunction with other discounted cash

flow methods such as Net Present Value (NPV), Internal Rate of Return (IRR)
and Benefit-Cost ratio.