project feasibility analysis in engg. economics

8/8/2019 Project Feasibility Analysis in Engg. Economics

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ENGINEERING ECONOMICS

FINAL COURSE PRESENTATION

PRESENTED BY:

Pramod Thapa 064bme625Susheel Regmi 064bme646

Umanga Bhattarai 064bme647Utsav S. Rajbhandari 064bme648


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p r e p a r e d b y : -

& D Solar Solut ions PROJECT FEASIBILITY ANALYSIS

UPSS NGINEERI NG SOUTIONS NGINEE RING SOUTIONS


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Problem statement

R&D solar solutions that manufactures solar heating equipment, namely improved solar water heater. The initial investment is Rs.70 lakhs. The production target is 250

units per year till the service life of 10 years. During these years, it would invest in

R&D. At the end of year 6, additional Rs.5lakhs,in bulk is, invested for R&D. After

its current service life, the continuation would be based in the progress by the R&D.The land is on rent while other fixed assets are the capital investment. With the

assumption of escalation rate of 5%, the depreciation for building and machinery to

be 15% and 25% respectively. The annual insurance cost is 2.5% . The revenue per

unit production for the first year is Rs50,000 and it will increase by 5% each year

thereafter. The MARR of the company is assumed to be 15%


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OBJECTIVES

To make the engineering economic analysis using Project Evaluation Technique

To Develop a Discounted Cash Flow (DCF) model for the project and find out whether

the project is feasible or not.

To check out whether the project can be carried out further along with R&D.

To find out the IRR for the project.

To find the payback period of the project

The non-commercial objective of this project is to replace diesel and kerosene burning

water boilers in various industries and household purposes in Nepal with high

efficiency solar water heaters to reduce imported fossil fuel use and related GHG

emissions


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METHODOLOGY


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Methodology (continued)

Analysis Tools used:Discounted Payback PeriodNet Present Value

Annual Equivalent ValueInternal Rate Of Return


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Discounted Payback period

Payback period is the time needed to recover theinitial investment by the net cash flows produced by the investment.

But it doesnt show the profit.


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NPV

Present worth (PW) is an equivalent cash flow at present, generally att =0, to all the cash flows associated with a project.

NPV =A i (P/F, i, n) NPV =A i (P/F, i, n)

If NPV > 0, accept the investmentIf NPV = 0, remain indifferentIf NPV< 0, reject the investment.


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AEV

It is measurement of investment on equal paymentannual basis.

AE(i)=PW(i)(A/P,I,N)

If AE>0, accept the projectIf AE =0, remain indifferentIf AE


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IRR

Internal rate of return (IRR) of a project is the interestrate, i, which makes PW(i) = 0.

Methods of project Evaluation by IRR If IRR>MARR, accept the projectIf IRR = MARR, remain indifferentIf IRR < MARR, reject the project


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Capital Costs


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Annual Expenditures


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Revenue


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Project Cash Flow


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Project evaluation techniques

We have used following method for project evaluation:

Payback period:Between 5 th and 6 th year

Net Present Value (NPV):PW(15%)=Rs. 5143000

Annual equivalent value: AE(15%)=Rs. 1025000

Internal rate of return:IRR=28%


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Payback Period

Discounted payback periodyear Cash flow % cash cumulative

0 -7000 0 -7000

1 1445 -1050 -6605

2 1758 -991 -5838

3 2040 -876 -4673

4 2302 -701 -3072

5 2549 -461 -984

6 2285 -148 1153

7 3016 173 4342

8 3348 651 8341

9 3664 1251 13256

10 3862 1988 19107

Payback period is between 5 th and 6 th year Very attractive for a company

which is planning furtherexpansion in future.


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NPV and AEV

NPV: Assume, MARR=15%=iFor our project,

NPV(15%)= A i (P/F, i, n) =Rs. 5143000

As, NPV is +ve, so we accept project

AEV: AE(15%)=Rs. 1025000

Attractive Annual income


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IRR NPV Profile

year Cash Flow Discount rate NPV 0 -7000 0%19,268

1 1445 5%12,471

2 1758 10%7,896

3 2040 15%4,723

4 2302 20%2,459

5 2549 25%803

6 2285 30%(437)

7 3016 35%(1,386)

8 3348 40%(2,127)

9 3664 45%(2,715)

10 3862 50%(3,190)

IRR = 28% Very attractive for investors


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CONCLUSION

v The project is feasible and is profitable.

v Investment on R&D is also feasible.

v The project can be even carried out further after the

projected life based on the progress report from R&D.

v The payback period is very good.

v The IRR is attractive enough to attract any investor, if

required.


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THANK YOU ! ! !

project feasibility analysis in engg. economics

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