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Project CH 4
Project CH 4
Secondary and primary sources of data can be used for further investigations.
Newspapers
Consumption = P + I – E – CSL
Where,
P = production
I = Imports
E = Exports
CSL = Changes in stock level(ending stock)
Bases of segmentation:
Geographic segmentation
Demographic segmentation (age, sex, family size, marital status,
religion).
Socio-economic segmentation (income, consumption levels, culture).
Competition
Hope/ Project/ Lecture Slides
Market Feasibility Cont’d…
Consumer’s quality perceptions
Middlemen (distributors)
Suppliers
Government
Economic conditions
Ethical considerations
Demand
Marketing mix
Cost of products and objective of the firm
Product differentiation (color, size, attractive package, attractive uses)
Pricing strategy
a. Market skimming: setting a relatively high initial price for a new product
d. Publicity፡ -involves the news carried in the mass media about a firm and
its products, policies, personnel or actions, such as news releases, press
conference etc.
e. Public relations፡ -is a planned effort by an organization to influence the
attitudes and opinions of a specific group.
II. The responses received from the experts are summarized and sent to the
experts along with a questionnaire to probe further the reasons for the
extreme views expressed.
III. The process may be continued for one or more rounds till a reasonable
agreement emerges.
a= y b t
n
=
5(3094) (15 x1036) 15470 15540 7
5(55) (15) 2 275 =225 5
Hope/ Project/ Lecture Slides
Market Feasibility Cont’d…
a= y b t
n
7
=
1036 15
5
5
= 211.40
7
Yt = 211.40 - t
5
The above regression equation is used to forecast demand from period five
to any period into the future. For example, the demand forecast for period 7
(t = 7) is computed as follows:
Where,
Ft-1 = previous forecast
a = smoothing constant
Ft = New forecast
Dt-1 = the demand for the current period
Actual demand for April was 140 units (Dt-1 = 140). If smoothing constant is
0.4 ( = 0.40), the forecast for May would be:
= 128
If the company uses a four-year moving average, sales forecast for year 5 is:
S1 S 2 S3 S 4
F5 = 4
80 60 70 90
4 = 75
If the company uses a nine-year moving average, sales forecast for the 10th
year is:
S1 S 2 S 3 S 4 S 5 S 6 S 7 S 8 S 9
9
80 60 70 90 75 100 80 85 60
F10 77.78
= 9
Product mix
Plant capacity
Location and site
Latest developments
Ease of absorption
Hope/ Project/ Lecture Slides
Technical Analysis Cont’d……
b. Appropriateness of Technology
suitable to local economic, social, and cultural conditions.
c Acquiring Technology
Technology licensing - the licensee get the right to use technology
Outright purchases
i. Raw materials
ii. Processed industrial materials and components
iii. Auxiliary materials and factory supplies
iv. Utilities
Hope/ Project/ Lecture Slides
Technical Analysis Cont’d……
i. Raw Materials
Agricultural products
Mineral products
Components
Sub-assemblies
Government policy
i. Feasible Nominal Capacity: achievable under normal working conditions
taking into account:
Normal stoppages
Downtime
Maintenance
Shift patterns
Hope/ Project/ Lecture Slides
Technical Analysis Cont’d……
ii. Feasible Normal Capacity (FNC): technically feasible capacity and
corresponds to the installed capacity.
4. Product Mix
b. Site: a specific piece of land where the project would be set up.
Hope/ Project/ Lecture Slides
Technical Analysis Cont’d……
Choice of location is influenced by:
Proximity to raw materials and markets - cement plant or a steel mill
Availability of infrastructure- Power, water, road, etc.
Cost of land
Site preparation and development, requirements and costs.
Instruments,
Controls,
Residential buildings
project inputs
the outputs
future net benefits, expressed in financial terms
g. Pre-operative expenses
h. Margin money for working capital and Initial cash losses.
Hope/ Project/ Lecture Slides
Financial Analysis Cont’d……
a. Land and site development
cost of land
Premium payable on leasehold
Cost of gates
Cost of laying approach roads and internal roads
Cost of leveling and development
Sewers, drainage
Silos, tanks, wells, chests, basins
Quarters for essential staff
h. Pre-operative Expenses
Establishment expenses, rent, and taxes, traveling expenses, insurance
charges, etc.
related to the project implementation schedule (delays in project
implementation will push up expenses).
Advertising campaigns
2. Estimating Production
Year
1 2 3 4 5
Production 150,000 180,000 300,000 300,00 300,000
Desired ending inventory 10,000 10,000 10,000 10,000 10,000
Sold 140,000 170,000 290,000 290,00 290,000
Selling price/unit 160 160 160 160 160
Total sales Revenue 22,400,000 27,200,000 46,400,000 46,400,000 46,400,000
Suppose that the factory overhead costs of Addis Company are estimated
to be 60% of direct labor costs. Then factory overhead costs are estimated as
follows:
Year
1 2 3 4 5
Desired ending 10,000 10,000 10,000 10,000 10,000
inventory
After tax cash = Net income + Non-cash expenses + Interest (1-tax rate)
Hope/ Project/ Lecture Slides
Financial Analysis Cont’d……
3. The terminal cash flow: cash flows that occur at the end of the life of the
project.
it involve mainly salvage value (net of tax) and recovery in networking
capital.
Assume that a project requires an initial investment of Br. 60,000. The after
tax cash flows (or net cash flows) are as follows:
Year 1 = 8,000 Year 4 = 20,000
Year 2 = 15,000 Year 5 = 20,000
Year 3 = 22,000
NPV = PV of NCF – I0 1
1
1 0.105 40,000
= 12,000 0.10
the discount rate at which the present value of Net cash flows is equal to
the present value of initial investment.