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UNIT II (Project Identification)

PROJECT :

A Project is a combination of human and non-human resources put together in a temporaryorganization to achiee a specified purpose! Project is a system ino"ing co-coordination of anumber of interre"ated actiities to achiee a specific objectie!

PROJECT C#C$E

Project cyc"e has fie stages % identification& formu"ation& appraisa"& imp"ementation andmonitoring and ea"uation!

'i( )dentification: )dentification cou"d be from seera" sources: progressie farmers&entrepreneurs& technica" e*perts& "oca" "eaders& ban+ers& mass media& e*tension agencies andnationa" po"icies and p"ans!

'ii( ,ormu"ation: Preparation of feasibi"ity study is the first step in ana"ysis! Adanced techniues

of project p"anning "i+e Programme Ea"uation and Reie. Techniues 'PERT( and Critica" path/ethod 'CP/( are used in capita" intensie and comp"e* project and those .ith "onger gestationperiod 'the period bet.een starting of imp"ementation of the project and income generation(!

'iii( Appraisa": After preparation& eery project is appraised by an independent agency! Thisinc"udes ana"ysis and scrutiny of each and eery aspect& detai"s and assumptions made in theproject! 0enera""y ban+s hae to underta+e the appraisa" of project before financing! Theappraisa" is a"so assigned to specia"ized agencies in case of comp"e* project! The appraisa" isconducted from seera" aspects "i+e technica"& financia"& commercia"& manageria"& economic&distributie and enironmenta"! Een .ithin financia" appraisa"& there are arious types of

ana"ysis!

'i( )mp"ementation: )mp"ementation basica""y means trans"ating the proposa" into a ground "ee"project! The phases of the imp"ementation are:

a( Pre dee"opment phase: this ino"es getting registration& "icenses and "oan disbursement&

b( 1ee"opment phase: construction of structures and starting up of production& and

c( Operationa" phase :starts .ith production and conc"udes .hen the economic "ife of the projectcomes to an end!

'( /onitoring and Ea"uation: The fina" phase in project cyc"e is the monitoring and ea"uation!/onitoring +eeps trac+ of the project& usua""y done by co""ecting certain performance indicatorsabout the project to chec+ .hether the project is performing according to the p"an& identifyingprob"em areas and finding possib"e so"utions! There are t.o types of monitoring .hich ban+sunderta+e:

a( 1es+ monitoring based on co""ected data2

and1

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b( ,ie"d monitoring& based on actua" fie"d isit! Ea"uation is conducted for the purpose of"earning "essons of success and fai"ure from the project! There are seera" organizations '"i+e3A4AR1 or training estab"ishments( .hich conduct such ea"uation studies and pub"ish themfor .ider circu"ation!

PROJECT )1E3T),)CAT)O3

Project identification is the first step of a ne. enture! A right direction may enab"e anentrepreneur to sca"e ne. height! Other.ise& he has to undergo a number of hurd"es in his .ay! )tis therefore& ery crucia" to entrepreneurs to identify project! Project identification is concerned.ith co""ection& compi"ation and ana"ysis of economic data for the eentua" purpose of "ocatingpossib"e opportunities for inestment!

5TEP 6 : 5EARC7 O, 3E8 )1EA 9 0E3ERAT)O3 O, )1EA5 9 5EARC7 O, 45)3E55OPPORT3)T#:

The search for promising project idea is the first step to.ards estab"ishing a successfu" enture!

)dentification of such opportunities reuires imagination& sensitiity to enironmenta" changesand rea"istic assessment of .hat the firm can do! Entrepreneur ta+es the he"p many too"s togenerate ne. ideas "i+e: 'i( 58OT Ana"ysis: 58OT is an acronym for 5trength& 8ea+nesses&Opportunities and 5trength! On ana"yzing these factors one can come up .ith ne. ideas on:

Cost Reduction

Productiity improement

)ncrease in capacity uti"ization

)mproement in contribution marginE*pansion into promising fie"ds

'ii( 4rainstorming: )t is probab"y the most .e"" +no.n and .ide"y used for creatie ideageneration! )t is an unstructured process for generating a"" possib"e ideas .ithin a "imited timeframe through the spontaneous contributions of participants! The participants can be theentrepreneur;s fami"y members& friends& business partners& hired e*perts etc!

'iii( Other constrains:

Ana"yse the performance of E*isting )ndustries

E*amine the inputs and outputs of arious )ndustries

Reie. )mports and E*ports

5tudy P"an Out"ays and 0oernment 0uide"ines

$oo+ at the suggestions of ,inancia" )nstitutions and 1ee"opmenta" Agencies

)nestigate $oca" /ateria"s and Resources

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Ana"yse Economic and 5ocia" Trends )nterna" factors 5trengths

Po"itica" support

,unding aai"ab"e

/ar+et e*perience

5trong "eadership

Any foreign co""aboration

)ndustria" contacts 8ea+nesses

Project is ery comp"e*

$i+e"y to be cost"y'huge inestment(

$ac+ of e*perience

$ac+ of trained personne"!

)nabi"ity to forecast mar+et trends! E*terna " factors Opportunities

Project may improe "oca" economy

Competitor .ea+ness!

Project .i"" boost company

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mention points he"ps the entrepreneur to se"ect the best idea: 6! Compatibi"ity .ith the PromoterThe idea must be compatib"e .ith the interest& persona"ity& and resources of the entrepreneur!According to /urphy& a rea" opportunity has three characteristics: i( )t fits the persona"ity of theentrepreneur 'abi"ities& training etc( ii( )t is accessib"e to him iii( )t offers him the rapid gro.thand high returns >! Consistency .ith 0oernmenta" Priorities: i( )s the project consistent .ithnationa" goa"s and priorities? ii( Are there any enironmenta" effect contrary to goernmenta"

regu"ation? iii( Can the foreign reuirements of the project be easi"y accommodated? i( 8i""there be any difficu"ty in obtaining the "icenses for the project? @! Aai"abi"ity of )nputs: i( Arethe capita" reuirements of the project .ithin manageab"e "imits? ii( Can the technica" +no.-ho.reuired for the project can be obtained? iii( Are the ra. materia"s reuired for the projectaai"ab"e domestica""y at reasonab"e cost? i( )s the po.er supp"y for the project reasonab"yobtainab"e from e*terna" sources? ! Adeuacy of the mar+et i( Tota" present domestic mar+et ii(Competitors and their mar+et shares iii( E*port mar+et i( Bua"ity-price profi"e of the productis--is competitie product ( 5a"es and distribution system

i( Projected increase in consumption ii( Patent protection D! Acceptabi"ity of Ris+ $ee" i(

u"nerabi"ity to business cyc"es ii( Techno"ogica" Changes iii( Competition from substitutes i(Competition from )mports ( 0oernmenta" contro" oer price F! 5ocio-1emographic 5ector i(Popu"ation trends ii( )ncome distribution iii( Educationa" ,rame.or+ i( Attitudes to.ardconsumption and inestment

5TEP : @ A55E55/E3T O, )A4)$)T# 9 PROJECT APPRA)5A$ 9 ,EA5)4)$)T# 5T1#

1uring the process of project appraisa" a feasibi"ity study may be underta+en to estab"ish thejustification of the identified project in a"" of its re"eant dimensions& inc"uding its technica"&economic and financia" iabi"ity& enironmenta" comp"iance and socia" acceptabi"ity2 as .e"" asits conformity .ith the nationa" dee"opment objecties and priorities and the re"eant po"icy&"ega" and regu"atory frame.or+! ,easibi"ity study is to initia""y identify the fo""o.ing aspects: i!Technica" soundness of the project ii! Administratie feasibi"ity of the project iii! The economicand financia" iabi"ity of the project proposa" i! Considerations of customs and traditions ofproject benefactors& issues of compatibi"ity The resu"ts of a feasibi"ity study inf"uences decisionsto commit or not commit scarce resources to a gien project !

')( /ARGET A3A$#5)5:

/ar+et ana"ysis is concerned primari"y .ith t.o uestions:

8hat .ou"d be the aggregate demand of the proposed product9serice in the future?

8hat .ou"d be the mar+et share?

To ans.er the aboe uestions& the mar+et ana"yst reuires a .ide ariety of information andappropriate forecasting methods! The +inds of information reuired are: Consumption trendsin the past and the present consumption "ee" Past and present supp"y position Production possibi"ities and constraints )mports and e*ports 5tructure of competition Cost structure

E"asticity of demand Consumer behaior& intentions& motiations& attitudes& preferences&

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and reuirements 1istribution channe"s and mar+eting po"icies in use Administratie& technica"& and "ega" constraints

'))( TEC73)CA$ A3A$#5)5

Ana"ysis of the technica" and engineering aspects of a project needs to be done continua""y .hena project is formu"ated! The important uestions raised in technica" ana"ysis are: 8hether the

pre"iminary tests and studies hae been done? 8hether the aai"abi"ity of ra. materia"s&po.er& and other inputs has been estab"ished? 8hether the se"ected sca"e of operation isoptima"? 8hether the production process chosen is suitab"e? 8hether the euipment and machines chosen are appropriate? 8hether the au*i"iary euipments and supp"ementaryengineering .or+s hae been proided for? 8hether proision has been made for thetreatment of eff"uents? 8hether the proposed "ayout of the site& bui"dings& and p"ant is sound?

8hether .or+ schedu"es hae been rea"istica""y dra.n up? 8hether the techno"ogy proposed to be emp"oyed is appropriate from the socia" point of ie.?

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The primary aim of financia" ana"ysis is to determine .hether the project satisfies the inestmentcriteria of generating acceptab"e "ee" of profitabi"ity! The aspects .hich hae to be "oo+ed into.hi"e conducting financia" ana"ysis are: )nestment out"ay and cost of project 5ources of financing Cost of capita" Projected profitabi"ity 4rea+-een point Cash f"o.s of the project Projected financia" position $ee" of ris+

')( ECO3O/)C A3A$#5)5

Economic ana"ysis& a"so referred to as socia" cost benefit ana"ysis& is concerned .ith judging aproject from the "arger socia" point of ie.! The uestions to be ans.ered in socia" cost benefitana"ysis are: 8hat are the direct economic benefits and costs of the project measured in termsof shado. 'efficiency( prices and not in terms of mar+et prices? 8hat .ou"d be the impact ofthe project on the distribution of income in the society? 8hat .ou"d be the impact of theproject on the "ee" of saings and inestment in the society? 8hat .ou"d be the contributionof the project to.ards the fu"fi""ment of certain merit .ants "i+e se"f- sufficiency& emp"oyment&and socia" order?

'( ECO$O0)CA$ A3A$#5)5

Eco"ogica" ana"ysis shou"d be done particu"ar"y for major projects .hich hae significant

eco"ogica" imp"ications '"i+e po.er p"ants and irrigation schemes( and enironment-po""utingindustries '"i+e bu"+ drugs& chemica"s& and "eather processing(! The +ey uestions raised ineco"ogica" ana"ysis are: 8hat is the "i+e"y damage caused by the project to the enironment?

8hat is the cost of restoration measures reuired to ensure that the damage to theenironment is contained .ithin acceptab"e "imit

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PROJECT ,)3A3C)30:

,inance is supposed to be the most important ingredient of a project .ithout .hich a projectcannot moe an inch! ,inance is needed to conert the ideas into feasib"e project .hich in turn.i"" generate finance! ,inance is needed not on"y to comp"ete a project but a"so to manage it onday-to-day basis! 5hort-term finance is needed to coer the day to day running of thebusiness! )t .i"" be paid bac+ in a short period of time& so "ess ris+y for "enders! The main typesof short-term finance are: Oerdraft 5upp"iers credit 8or+ing capita" $ong-term finance tends to be spent on "arge projects that .i"" pay bac+ oer a "onger period of time! /oreris+y so "enders tend to as+ for some form of insurance or security if the company is unab"e torepay the "oan! A mortgage is an e*amp"e of secured "ong-term finance! The main types of "ong-term finance that are aai"ab"e for to a business are: /ortgages 4an+ "oans 5hare issue

1ebentures Retained profits 7ire purchase )nterna" finance comes from the trading of the business! E*amp"es of interna" finance are: 1ay to day cash from sa"es to customers! /oney "oaned from trade supp"iers through e*tended credit! Reductions in the amount ofstoc+ he"d by the business! 1isposa" 'sa"e( of any surp"us assets no "onger needed 'e!g! se""ing

a company car(! )nterna" finance tends to be the cheapest form of finance since a business doesnot need to pay interest on the money! 7o.eer it may not be ab"e to generate the sums ofmoney the business is "oo+ing for& especia""y for "arger uses of finance! E*terna" financecomes from indiidua"s or organisations that do not trade direct"y .ith the business e!g! ban+s!E*amp"es of e*terna" finance are:

An oerdraft from the ban+!

A "oan from a ban+!

The sa"e of ne. shares through )POs! CAP)TA$ 5TRCRRE The capita" structure of a

company refers as "ong-term finances used by the firm! The decision regarding the capita" isbased on the objectie of achieing the ma*imization of shareho"ders .ea"th! ,actors1etermining Capita" 5tructure '6( /inimization of Ris+: Capita" structure must be consistent.ith business ris+! )t shou"d resu"t in a certain "ee" of financia" ris+! '>( Contro": )t shou"dref"ect the management;s phi"osophy of contro" oer the firm! '@( ,"e*ibi"ity : )t refers to theabi"ity of the firm to meet the reuirements of the changing situations! '( Profitabi"ity: )t shou"dbe profitab"e from the euity shareho"ders point of ie.! 'D( 5o"ency: The use of e*cessie debtmay threaten the so"ency of the company! 'F( Return: The project shou"d proide satisfactoryand time"y return!

O83ER ,319 O83ER5 CAP)TA$: Capita" contributed by the o.ner or entrepreneur of abusiness& by means of saings or inheritance& is +no.n as o.n capita" or euity! 5ources'Capita"mi*( Amount Cost Percentage of tota" capita" O.ners fund >D&HHH&HHH 6>I !6 Euity shareD&HHH&HHH 6DI >6!@ Preference shares DH&HH&HHH 6FI 6!>K 4orro.ed fund: 1ebentureH&HH&HHH 6I 66!@ Term "oans 6&HHH&HH&HHH 6LI >L!DL $easing finance @H&HH&HHH 6LI L!DOther adances @H&HH&HHH 6DI L!D @&DH&HH&HHH 6HH

O.ner

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the amount remaining be"ongs to the business o.ner and it is the one that is referred to as A unitof o.nership that represent eua" proportion of company;s capita"! )t entit"es its ho"der 'theshareho"der( to an eua" c"aim on the company

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CO5T O, CAP)TA$

Capita" refers to the funds inested in a business! The capita" is generated from different sourcessuch as euity shares& preference shares& and debt! A"" capita" has a cost! 7o.eer& it ariesfrom one sources of capita" to another& from one company to another and from one period of timeto another! Cost of capita" to the company

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type of securities to be issued! @- 1etermining the composition of arious securities! 3arro.)nterpretation

According to this capita"ization imp"ies the process of determining the uantity of funds to runits business! According to this ie. the decisions regarding the form or composition of capita"fa"" under the capita" structure 1efinition According to 0E5TE34ER0 Capita"izations meanthe tota" accounting a"ue of a"" the capita" regu"ar"y emp"oyed in the business!Q 5tages ofCapita"ization Oer Capita"ization:- )n simp"e .ords& Oer Capita"ization means e*istence ofe*cess capita" as compared to the "ee" of actiity and reuirements! )f the entrepreneur raisese*cess capita" than the reuired amount in re"ation to the rate of earning& it is considered to beoer capita"ization! E*cess of amount of capita" may "ead to id"eness of fund& misuti"ization offund& "o.er rate of return on the inestment etc! 7o. Oer capita"ized can be identified: Actua" rate of earning Current rate of earning Rea" a"ue of business 4oo+ a"ue ofbusiness Rea" a"ue of shares 4oo+ a"ue of shares Adantages of oer capita"ization The management is assured of adeuate capita" for present operations! Amp"e capita" has abeneficia" effect on an organization;s mora"e! Amp"e capita" gies added f"e*ibi"ity and

"atitude to the corporations operations! The profit rates tend to discourage possib"ecompetitors! ,or pub"ic uti"ity companies .hen the price of serice is based upon a fairSReturn to capita"; 7igh capita"ization may be adantageous! 1isadantages Oercapita"ization may induce fai"ure and the fai"ure of the company may bring an unhea"thyeconomic 5ituation!

The ethica" atmosphere of a business is not improed by oer capita"ization! 1ue to oer capita"ization& there may be an inabi"ity to pay interest on bonds! 1ec"ine in the a"ue ofsecurities! )njury to credit .orthiness Effects of oer capita"ization Aderse effects of oercapita"ization can be c"assified into the fo""o.ing categories: )! On the company The mar+et

price of the euity shares fa"" .hich reduces the credit standing of the company! 1ue to poorprofitabi"ity it cannot interna""y finance the projects! To The company fai"s maintain thediidend rate 1ue to the reduced credit standing the mar+etabi"ity of future issues of capita" isjeopardized ))! On the company They do not get fair return on their inestment! The mar+et price of the shares of an oer capita"ization concern fa""s! )))! On the society )f suchunit enjoys monopo"y& they e*p"oit consumers and emp"oyers! The productiity of such unit is"ess! Thus scarce resources are poor"y emp"oyed! ,or suria"& they troub"e the goernmentfor assistance and concessions! This increase the uantum of pub"ic e*penditure! ndercapita"ization: )f an entrepreneur inests inadeuate or "ess amount of capita" than the reuired inre"ation to the earning capacity& it is termed as under capita"ization! nder capita"ization is an

indication of effectie and proper uti"ization of funds emp"oyed in the business! )t a"so indicatessound financia" position and good management of company! )nadeuate inestment .i"" "ead toshortage of fund& adjustment of fund& de"ay or stoppage of .or+s due to scarcity of fund& de"ayand defau"t in payment to outsiders& "oss of reputation& higher rate of return etc! 7o. nder-capita"ized can be identified: Actua" rate of earning Current rate of earning Rea" a"ue of business 4oo+ a"ue of business Rea" a"ue of shares 4oo+ a"ue of shares

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Reasons "eading to under capita"ization 5carcity of fund 3on aai"abi"ity of e*terna" debt! $ac+ of credit.orthiness& Oer ea"uation of inestment proposa"s E*cessie financia"

contro"! 5trict management of finance 4enefits of under capita"ization 4est possib"e uti"ization of fund! Rate of return is comparatie"y high in re"ation to simi"ar industries! )ncrease in the mar+et a"ue of euity shares )ncrease in boo+ a"ue )ncrease in earnings per share' EP5( )ncrease in reputation Reduced dependence on e*terna" finance 7igher

diidend for inestors Possibi"ity of higher resources and surp"us! 1emerits of nder-capita"ization! A"" the time there .i"" be financia" adjustment 7igher rate of profit .i"" attract competition! There may be more demand of bonus 7igher profits .i"" attract higher ta*es! )t .i"" create more specu"ation in the stoc+ mar+et PROJECT ,OR/$AT)O3 Projectformu"ation is done to ensure the best uti"isation of minimum possib"e resource to yie"d thema*imum possib"e resu"ts! Project formu"ation "ays the foundation for the fina" se"ection of aninestment proposa" after a comparatie ana"ysis of a"" the inestment proposa" se"ected doe thepurpose! Project ino"es step by step inestigation and dee"opment of project idea! )t proides a contro""ed mechanism for restricting e*penditure on project dee"opment! Projectformu"ation is a process ino"ing the joint efforts of a team of e*perts! Each member of the

team shou"d be fami"iar .ith the broad strategy& objecties and other ingredients of the project!Project team shou"d consist of e*perts in major substantie fie"ds of the project! A .e""-

formu"ated feasibi"ity report proides a medium& for successfu" imp"ementation of a project!

6F! /s! 5O3A/ GAP)$ '$ecturer /)T& /)ET 0ROP /eerut( Page 6F Project formu"ation isdefined as ta+ing a first "oo+ carefu""y and critica""y at a project idea by an entrepreneur to bui"dup an a""-round beneficia" to the project after carefu""y .eighing its arious components!Q )nshort Project ,ormu"ation is a process .hereby the entrepreneur ma+es an objectie andindependent assessment of the arious aspects of an inestment proposition of a project idea fordetermining its tota" impact and a"so its "iabi"ities! 5tages of Project ,ormu"ation 6! ,easibi"ity

ana"ysis >! Techno-Economic Ana"ysis @! Project 1esign and 3et.or+ Ana"ysis ! )nput Ana"ysisD! ,inancia" Ana"ysis F! Cost-4enefit Ana"ysis ! Pre-)nestment Ana"ysis ,easibi"ity Ana"ysis:U,irst stage in project formu"ation UE*amination to see .hether to go in for a detai"ed inestmentproposa" or not U5creening for interna" and e*terna" constraints Conc"usion cou"d be UThe projectidea seems to be feasib"e UThe project idea is not a feasib"e one Unab"e to arrie at a conc"usionfor .ant of adeuate data Techno-Economic Ana"ysis: 5creens the idea to-Estimate of potentia"of the demand for goods9serices Choice of optima" techno"ogy

6! /s! 5O3A/ GAP)$ '$ecturer /)T& /)ET 0ROP /eerut( Page 6 This ana"ysis gies theproject a p"atform for preparation of detai"ed project design Project 1esign and 3et.or+

Ana"ysis: U)t is the heart of the project entity U)t defines the seuence of eents of the projectUTime is a""ocated for each actiity U)t is presented in a form of a net.or+ dra.ing U)t he"ps toidentify project inputs& finance needed and cost-benefit profi"e of the project )nput Ana"ysis: U)tsassesses the input reuirements during the construction and operation of the project U)t definesthe inputs reuired for each actiity U)nputs inc"ude materia"s& human resources U)t ea"uates thefeasibi"ity of the project from the point of ie. of the aai"abi"ity of necessary resources UThisaids in assessing the project cost ,inancia" Ana"ysis: U)t ino"es estimating the project costs&operating cost and fund reuirements U)t he"ps in comparing arious project proposa"s on a

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common sca"e UAna"ytica" too"s used are discounted cash f"o.& cost-o"ume-profit re"ationshipand ratio ana"ysis U)nestment decisions ino"e commitment of resources in future& .ith a "ongtime horizon U)t needs caution and foresight in dee"oping financia" forecasts Cost- 4enefitAna"ysis: UThe oera"" .orth of a project is considered UThe project design forms the basis ofea"uation U)t considers costs that a"" entities hae to bear and the benefit connected to it

6L! /s! 5O3A/ GAP)$ '$ecturer /)T& /)ET 0ROP /eerut( Page 6L Pre-inestmentAna"ysis: UThe resu"ts obtained in preious stages are conso"idated to arrie at c"ear conc"usionsU7e"ps the project-sponsoring body& the project-imp"ementing body and the e*terna" consu"tingagencies to accept9reject the proposa" PROJECT EA$AT)O3 Project ea"uation refers to thesystematic co""ection& ana"ysis and use of information to ans.er uestions about a project! )tino"es the ana"ysis of costs& outcome or impact& imp"ementation as .e"" as the need for theproject! )n genera" terms it chec+s: 'i( /ethods for contro""ing the cost& time& ua"ity andperformance characteristics of a project& from the initia" p"anning to post comp"etion assessment&are sound and effectie"y app"ied2 'ii( /anagement information is prompt& adeuate andaccurate2 'iii( Assets and interests are proper"y contro""ed and safeguarded from a"" "osses2 'i(

There are adeuate safeguards against fraud& error and impropriety2 '( /ateria" "osses due to.aste or inefficiency are identified and recoered2 'i( )nformation on .hich costs and cash f"o.projections are based proide a sound basis for the funding of the project2 'ii( )nterna" guidanceand other estab"ished po"icies and procedures are fo""o.ed! 6( Project appraisa" 'Project,inancia" Ea"uation( There are some important methods to determine the return of inestment&.hich are ery essentia" criteria for ta+ing a decision to a start a project: 'a( )nestment and Cash,"o. Concept Cash f"o. statement is the basis for financia" ana"ysis! )n the initia" period there isa negatie cash f"o. because of inestment in capita" assets& but after the project ta+es off& thecash f"o. becomes positie due to the increased income!

6K! /s! 5O3A/ GAP)$ '$ecturer /)T& /)ET 0ROP /eerut( Page 6K The period from startof the project ti"" its .inding up is +no.n as project "ife and .i"" ary from project to project!0enera""y& projects .ith more than >H years "ife are ana"yzed for financia" cost and benefits for>H years on"y& as the benefits accruing after that hae a neg"igib"e present a"ue! 'b( Return oninestment 'RO)(: RO) is defined as the ratio of profit to initia" capita"! The figure is compared tothe cost of the capita"! )f the project does not yie"d the desired RO)& it is not accepted! )f there area number of projects under consideration& then they are ran+ed on the basis of RO) and theproject .ith the best RO) or those aboe the desired RO) is9are se"ected! Aerage Rate of ReturnsN 'Annua" net income9Aerage )nestment(V6HH Aerage inestment N)nitia" inestment W 5crapa"ue9$ife of assets 'c( 1iscounted Cash ,"o. Techniue A project norma""y haing "ong "ife&

the cash f"o. spans oer a "ong period! 5ince the a"ue of money .i"" not be the same in a""years& the cash f"o. of a"" future years cannot be treated eua""y! The difference in the

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H!6( '6!6(6H 6 6HH X X N H!KHK This discount factor of H!KHK means that Re! 6 .hich going to be receied after 6 year .i"" hae its SPresent a"ue; as Rs! H!KHK today! Thiscomputation can be done by using discount tab"es! 'd( /easures of ,inancia" iabi"ity -- 3P&4CR and )RR

>H! /s! 5O3A/ GAP)$ '$ecturer /)T& /)ET 0ROP /eerut( Page >H ,inancia" iabi"ity ismeasured by net present a"ue& benefit cost ratio& interna" rate of return and debt serice coerageratios! 3et Present a"ue '3P( representing .ea"th creation by the Project& is ca"cu"ated byta+ing the discounted sum of the stream of cash f"o.s during the project "ife! 3P N 6 > @ !!!)nst! '6 ( '6 ( '6 ( n n CC C r r r X XXYXXX.here & C N Cash ,"o.s for different periods& r N 1iscountRate and )nest! N )nitia" )nestment 3P represents the difference bet.een the present a"ue ofthe cost and benefit streams! A project is considered iab"e if the 3P is positie at a giendiscount rate and ice-ersa! 4enefit Cost Ratio '4CR(: 4CR is the ratio of discounted a"ueof benefit and discount a"ue of cost! 4CR N 4enefits - 1isbenefits- /aintenance and operationcost Tota" cost of project- The sa"age a"ue Profitabi"ity )nde*: )t is a"so ca""ed present a"ueprofitabi"ity inde* or benefit cost ratio! Profitabi"ity )nde*N'Present a"ue of gross cash

inf"o.s9)nitia" cash out"ay( Present a"ue inde*N'Present a"ue of operating inf"o.s9Presenta"ue of 3et )nestment(V6HH The project is iab"e .hen 4CR is one or more than one and isuniab"e .hen it is "ess than one! )nterna" Rate of Return ')RR(: )RR represents the returnsinterna""y generated by the project! This is a"so the rate .hich ma+es the net present a"ue eua"to H! The ca"cu"ation of )RR is a process of tria" and error! 3orma""y& the process starts .ith theminimum discount rate and as the discount rate is increased the 3P .i"" come do.n andbecomes H or negatie! )f 3P is positie at one rate and negatie at the immediate ne*t rate 'fore*amp"e if 3P is positie at >HI discount rate and is negatie at >DI(& S)nterpo"ation /ethod;cou"d be used for finding out the e*act )RR by the fo""o.ing formu"a! E*act )RR by interpo"ationmethod N $ W '7 % $( Z '3P at $( ['3P at $( % '3P at 7(\

>6! /s! 5O3A/ GAP)$ '$ecturer /)T& /)ET 0ROP /eerut( Page >6 8here& )RR N )nterna"Rate of Return2 $ N $o.er discount rate .here 3P .as positie2 7 N 7igher discount rate at.hich 3P .as negatie! The project is considered iab"e if the )RR is more than the acceptab"erate for the entrepreneur .hich cou"d be the opportunity cost for his funds! )n case of agricu"tura"and rura" dee"opment projects genera""y the prescribed )RR for iabi"ity is 6DI in )ndia andother dee"oping countries! >( 3et.or+ Ana"ysis 'Project Time consumption ea"uation(: Roughestimate of Time Ta+en by the project to comp"ete is ca"cu"ated .ith the he"p of: CP/'Critica" Path /ethod( 3et.or+ ana"ysis techniue used in comp"e* project p"ans .ith a "argenumber of actiities! CP/ diagrams consist of '6( a"" actiities& '>( time reuired for their

comp"etion& '@( and ho. each actiity is re"ated to the preious and ne*t actiity! A seuence ofactiities is ca""ed a

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actiities are comp"eted on time! '>( Pessimistic time 'b(: This is the situation in .hich eeryactiity "oo+ difficu"t and cannot be comp"eted on time! '@( /ost "i+e"y Time 'm(: This situationis not so positie or negatie! )t has eua" probabi"ity to comp"ete the project on time! @( Projectdemand ana"ysis: As an essentia" part of project formu"ation and appraisa"& mar+et and demandana"ysis ita" so that capacity and faci"ity "ocation can be p"anned! 1emand ana"ysis is the art ofpredicting demand for a product or a

>>! /s! 5O3A/ GAP)$ '$ecturer /)T& /)ET 0ROP /eerut( Page >> serice at some futuredate on the basis of certain present and past behaiour patterns of some re"ated eents! 1emandforecasting for a product is techniue of estimating its demand in the immediate or distant future!/ET7O15 O, 1E/A31 ,ORECA5T)30 /ET7O15 O, 1E/A31 ,ORECA5T)30OP)3)O3 PO$$)30 /ET7O15 5TAT)5T)CA$ /ET7O15 Consumer surey method TrendProjection /ethod E*pert opinion /ethod '1e"phi techniue( Co""ectie opinion method4arometric Techniue Regression /ethod 5imu"taneous Euation /ethod 0raphica" /ethod$east suare /ethod /oing aerage method

>@! /s! 5O3A/ GAP)$ '$ecturer /)T& /)ET 0ROP /eerut( Page >@ Pre"iminary projectreport 6! )ntroduction a! )nformation about the entrepreneur: 3ame ]]]]]]]]]]]]]]]]]1ate ofbirth]]]]]]]]]]]]]]]] Address]]]]]]]]]]]]]]]]]]]]]]]]] Age]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]0ender]]]]]]]]]] ]]]]]]]]]]]]]]]]]]]]]]]]] Present"ymonth"y income: Rs ]]]]]]]]]]]]]]]]]]]]]]] Educationa" ua"ification :]]]]]]]]]]]]]]]]]]]]]]]]]] 5pecia" Training& if any : ]]]]]]]]]]]]]]]]]]]]]]]]]] 8or+e*perience : ]]]]]]]]]]]]]]]]]]]]]]]]]] Category: 5C95T9E*-mi"itary93R)9physica""yhandicapped 9 0enera"9:]]]]]]]]]]]] b! )nformation about the product 9project: Product:]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]] $ocation of the project :]]]]]]]]]]]]]]]]]]]]]]]]]]]]]] Type of organization:

]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]] 3ame of the firm:]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]] >! /ar+et potentia" 'nder this section theentrepreneur has to mention the area oer .hich his product may be so"d! 7e has to mention thepresent demand of the product in the area diision-.ise .ith the uantity = supp"y position anda"ue in tabu"ar form! At the end& the entrepreneur has to ma+e a conc"usion in faor of theproduct sho.ing a good mar+et scope in that area!( @! 4asis of presumption 'The entrepreneurhas to mention fo""o.ing detai"s( a! The aerage .or+ing hour per day& month and year b! 8henthe p"ant .i"" operate in its fu"" capacity has to mention! c! 8hat .i"" be the paybac+ period ofthe "oan? d! 7o. much percentage of margin money sha"" be proided by the promoter may bestated!'entrepreneur inest @HI to @D I of the entire fund from the his o.n poc+et = the rest

may be obtained on "oans from ban+ or financia" institution! e! The rate of interest for a "ong term"oan as .e"" as .or+ing capita" may be stated!

>! /s! 5O3A/ GAP)$ '$ecturer /)T& /)ET 0ROP /eerut( Page > f! The cost of "and andbui"ding has to be mentioned as per the preai"ing rates!it the factory sha"" be p"aced in rentedshed& it shou"d be mentioned! ! )mp"ementation schedu"e 'nder this the entrepreneur has tomention the time to be ta+en for the comp"etion of the project!( eg! a! Preparation of projectreport& se"ection of site^^^^^^^^^6 month b! 5ection of"oans^^^^^^^^^^^^^^^^^^^^^^^^^^!!@ month c! Construction

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of bui"ding Procurement of bui"ding Euipment;s andinsta""ation^^^^^^^^^^^^^^^^^^^!F months d! Arrangements ofuti"ities'.ater& e"ectricity etc^^^^^^^^^@ months e! Procurement of ra.materia"^^^^^^^^^^^^^^^^^^!!6 month f! Commission of p"ant = tria"production^^^^^^^^^^^ !!> months Tota" time reuired 6F months! D! Productiontarget 'The entrepreneur has to mention the production programme of the unit per annum!( )tems

Tota" uantity per year sa"es o"ume capacity uti"ization A @D tonne KHH&HHH 6HHI F! Technica"detai"s! 'The entrepreneur has to mention a"" the technica" detai"s of his project such asmanufacturing process& ua"ity and standard& po.er reuirement& po""ution contro" measures&energy conseration measures Etc!( ! ,inancia" detai"s '7ere the entrepreneur has to mention theamount of inestment needed on arious items to arrie at the tota" capita" reuired for theproject( ,i*ed capita" a! $and = bui"ding ' area and a"ue( b! /achinery and euipment;s'1escription of mach!& no! reuired& price& tota" a"ue& name =add of the supp"iers( c!/isce""aneous fi*ed assets 'too"s& furniture& office e*penses in Rs[Tota" assets NAW4WC\ ( d!Pre"iminary = preparatie e*penses 8or+ing capita": a! Ra. materia": s!no items Tota" month"yre! in ty! a"ue in Rs! sources 6 ^^^^^ ^^^^^^! ^^^^^! ^^^^!! Tota"

.or+ing capita" re!9month^^^^^^^!Rs^^^^^^!! b! 5a"aries = .ages of"abour9staff per month '/ention the name of the post& no! of persons needed = sa"arypayab"e9month and then tota" in Rs( c! ti"ities : per month s!no particu"ars /onth"y re! in Bty!/onth"y e*penses in Rs! 6 E"ectricity ^^^^^^ ^^^^^^!!

>D! /s! 5O3A/ GAP)$ '$ecturer /)T& /)ET 0ROP /eerut( Page >D The e"ectricity chargedis ca"cu"ated: Tota" horse po.er of machineries * !D N+8 per hour& per dayN L hrs Per monthN>D days * L hrs N >HH hrs Tota" e"ectricity charges sha"" be based on that! d! contingent e*penses'Rent& transportation e*pense& te"ephone& postage and stationery etc! in Rs and Tota" .or+ingcapita" per monthN AW4WCW1^^^^( L! Tota" capita" inestment9 cost of the project a!

8or+ing capita" p!m * @ N Rs^^^^!! b! ,i*ed capita" N Rs^^^^! c! Pre"iminary e*penseN Rs^^^^! Tota" cost of the project N Rs^^^^! K! Cost of production per annum a!8or+ing capita" p! m * 6> N Rs^^^^ b! 1epreciation N Rs^^^^ c! )nterest per annumon the tota" inestment_6DI N Rs^^^!! Tota" cost N Rs^^^^ 6H! Turnoer per annum5!no )tems Bty a"ue in Rs]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]] 6 A @D tonnes^^^^^^! > 4 FD tonnes ^^^^^^!]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]Tota" ^^^^^^^!!

]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]]66! Profits 4efore ta* Turnoer per annum in Rs! % cost of production per annumNprofit beforeta* 6>! 4rea+-een point '4EP( Tota" fi*ed cost 4EPN ---------------------------- ` 6HH Tota" fi*edcost W profit 6@! Profitabi"ity ratio Profitabi"ity N Profit ---------------------- * 6HH Turnoer 6!Rate of return on inestment Profit R N -------------------------- ` 6HH Tota" inestment 3ame andaddress of the referees: 6! ]]]]]]]]]]]]]]]]]]]]]]]]]]] >! ]]]]]]]]]]]]]]]]]]]]]]]]]]]@! ]]]]]]]]]]]]]]]]]]]]]]]]]]]

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>F! /s! 5O3A/ GAP)$ '$ecturer /)T& /)ET 0ROP /eerut( Page >F 5ignature of theapp"icant P"ace ]]]]]]]]]]]] 1ate ]]]]]]]]]]]]]

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