Finance Resources
Investment Planning
Stock Market
Futures & Options
Mutual Funds
Home » Finance Case Studies » A Note On The Financial Evaluation Of Projects

A Note On The Financial Evaluation Of Projects Finance Case Studies

The project evaluation process involves more than just determining a project's expected revenues and profitability; it also involves a study of the key factors that affect a project and their financial impact on the project. In addition, a project evaluation includes strategic evaluation, economic evaluation and social impact evaluation (Refer Exhibit I).

While the financial evaluation of a project aims at ascertaining the most efficient strategy for delivering the desired output, the strategic evaluation ensures that the project is consistent with the output objectives of the firm. The economic evaluation of the project, however, seeks to ensure that the delivered output is benefiting the public at large. The evaluation of social impact aims at ensuring that the consequences of a project (in terms of employment, output, savings and so on) are beneficial to the public. The financial appraisal is the most important part of the evaluation because the project cannot be successful if it is financially unviable, even though it may be technically and commercially feasible. 
Projects, by their definition, have a defined start and end date. A project is defined as "a collection of linked activities, carried out in an organized manner with a clearly defined start point and finish point, to achieve some specific results that satisfy the needs of an organization as derived from the current business plans."[1]

Projects are characterized by pre-determined goals, defined scope, limited resources, sequenced activities and a specific end result. While discussing the evaluation of a project, it is important to understand some other terms that are often used.
Cost of capital refers to the rate of return which must be earned by a firm in order to satisfy the expectations of the investors who provide the funds for the firm.

It is measured as the weighted arithmetic average of the cost of various sources of finance obtained by the firm. Expected return is the arithmetic mean or average of all possible outcomes where those outcomes are weighted by the probability of their occurrence. The legal, printing, postage, underwriting brokerage costs, and other costs of issuing securities, are known as floatation costs. Incremental cash flow is the difference in cash flows of a firm with and without a project. It can also be defined as the change in the future cash flows of a firm as a direct consequence of undertaking a project. The value of a future stream of payments or receipts from a project when discounted at a given rate to the present time it is known as the present value of a project. Projects are said to be mutually exclusive when the acceptance of one will necessarily mean the rejection of others.

The net present value of a project is the present value of future payments reduced by the present value of costs. The rate of discount at which the net present value of an investment is zero is called the internal rate of return. Benefit cost ratio measures the present value of returns per rupee of investment. Sensitivity analysis is a risk analysis technique used for studying the responsiveness of net present value to changing a variable in the profitability equation. It is akin to 'what if'analysis. For example, we can know the impact of reduction in the costs of raw materials by 10 % on NPV of a project.

More Case Studies
1 2 3 4 Next
put comment
Domain Registration | Windows Hosting | Linux Hosting | Java Hosting | Virtual Dedicated Server | Dedicated Server | Reseller Web Hosting | Unlimited Windows reseller hosting | Unlimited Linux reseller hosting | Cheap Windows reseller hosting | Cheap Linux reseller hosting | Cheap Windows hosting | Best Windows hosting | Windows hosting Multiple Domains | Unlimited Windows hosting | Compare hosting plans | Cheap Linux hosting | Best Linux hosting | Linux hosting Multiple Domains | Unlimited Linux hosting | Cheap asp.net hosting | Best asp.net hosting | unlimited asp.net hosting | Cheap asp.net reseller hosting | Unlimited asp.net reseller hosting | Java Features | Cheap Java hosting | Best Java hosting | unlimited Java Hosting | Unlimited Linux reseller hosting | Java Hosting Multiple Domains| | Matargashti Full Song | Matargashti mp3 Download | Matargashti Video Download | Matargashti Song Tamasha | Prem Ratan Dhan Payo Songs Download | Prem Ratan Dhan Payo Songs mp3 Download | Prem Ratan Dhan Payo Songs Video Download | Pinga Song Download | Pinga Full Song mp3 Download | Pinga Song mp3 Download | Pinga Song Video Download | Latest Bollywood Updates | Bollywood Updates | Prem Ratan Dhan Paayo Songs Download|
© ProfitGuruOnline-2024. All Rights Reserved.