Project Appraisal

10732 Words Aug 16th, 2011 43 Pages
CHAPTER 1

INTRODUCTION

PROJECT APPRAISAL
Every organisation has to examine the viability of each project before it provides financial assistance. It has to ensure that the project will generate sufficient funds on the resources invested in it. With the opening of new factory outlet, the study of viability of a project has become more vital for financing a project.
Project appraisal the process of critical evaluation of all the six faces of the project appraisal namely: 1. Technical analysis

2. Financial analysis

3. Legal analysis

4. Market analysis

5. Management appraisal

6. Ecological appraisal.

1 Technical Analysis:
Technical analysis of a project is essential to ensure that necessary
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2 Legal Analysis:

The collateral properties, guarantees and other legal legalities with respect to the regulations of the government will be analysed and this creates basis for further processes for the financial assistance.

3 Financial Analysis: Financial appraisal seeks to ascertain whether the proposed project will be functionally viable in the sense of being able to meet the burden of servicing debt and whether the proposed project will satisfy the return/expectations of those who provide funds Financial appraisal involves the following terms. o Capital cost of projects and sources of finance

o Financial projections-Cash flow and profitability estimates

o Ratio analysis

o Breakeven point

o Discounted cash flow techniques-net present value and internal rate of return.

Capital cost

Estimation of the capital cost of a project provides the basic information to decide its pattern of financing and profitability. If the cost of the project is not estimated correctly, the preparation of cash flow and profitability estimates will be futile exercise because the amount of depreciation, interest and dividend will change with the change in capital cost of the project. An entrepreneur has to tie up the resources according to the estimates of the cost of the project. If there is an overrun in the cost of the project, the entrepreneur may find it difficult to arrange for additional resources and it
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