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Document Text Contents
Page 1

How to Develop

Project
Feasjbility
StUdieS RevisedEdition

Page 2

How to Prepare

Project
Feasibility

Studies
Revised Edition

2012
Manila, Philippines

ij ~evdopm~t aca~e»-t\1 of tl1c philiwi~cs

Page 28

PROJECT
BENEFITS/
PROFITS

Project
Cost

+

Figure 7: Improvement Project

Additional Benefit WP

Foregone Benefit

l

WOP

SUGGESTED FORMAT FOR A FINANCIAL STUDY REPORT

I. Presentation of Major Assumptions
II. Summary of Project Cost

III. Sources of Financing the Project
IV. Financial Statements
V. Financial Analysis

VI. Decision Criterion (Computation of Net Present Value,
Payback Period, Internal rate of Return, Benefit-Cost
Analysis)

VII. Sensitivity Analysis
VIII. Analysis of 'With and Without a Project'

44 How to Prepare Project Feasibility Studies

SAMPLE FINANCIAL STATEMENT
HOTEL CASE: CASA FERNANDINA

A. Key Assumptions:

1. Sales Forecast:
a. Hotel- based on seasonality (annual hotel occupancy

rates) illustrated in the marketing plan. Room rates
increase every two years by 10 percent.

b. Coffee Shop-based on seasonality and seating capacity
(15 pax)

2. Cost of Goods Sold and Operating Expenses to increase
every year by 3 to 4 percent based on inflation.

3. Cost of Goods Sold
a. Free Breakfast for guests based on seasonality (annual

occupancy rates)
b. Materials projected at 36 percent on average of sales

revenue of the coffee shop

4. Operating Expenses
a. Salaries and Wages- based on human resource plan
b. Depreciation:

· Building's useful life - 15 years
· Equipment's useful life - 5 years
· Landscaping and interior design - 5 years

c. Promotional materials- based on marketing plan
d. Rent Expense- refers to the rent of the 2,500 square meter

lot currently being occupied by the antique shop, and
where Casa Fernandina will be erected.

e. Utilities - includes air conditioners, lights, other
electricity, water, and phone charges

5. Other Income- refers to use of function room (50 pax) and
rent from concessionaire

Financial Study 45

Page 29

Exhibit 2-1
Casa Fernandina Pro-forma Income Statement

for the Year Ended December 31, 2004

Year1 Year2 Year3 Year4

Sales Revenue
Hotel 1,920,000.00 2,028,000.00 3,030,000.00 3,030,000.00

Coffee Shop 889,560.00 889,560.00 1,317,501.90 1,317,501.90

Total Sales Revenue 2,809,560.00 2,917,560.00 4,347,501.90 4,347,501.90

Cost of Goods Sold
Free Breakfast 85,536.00 91,368.00 112,752.00 112,752.00

Pastries, etc 241 ,069 50 321.426.00 467,283.96 386,717 76

Total Cost of Goods Sold 406,962.00 412,794.00 580,035.96 580,035.96

Gross Revenue 2.402,598.00 2,504,766.00 3,767,465.94 3,767,465.94

Operating Expenses
Salaries & Wages 1,568,486.85 1,615,54146 1, 777,095 60 1,830,408.47
Depreciation 321,472.69 321,472.69 321,472.69 321.472.69

Promotional Materials 17,600.00 18,128.00 18,671 .84 19,232.00

Rent Expenses 139,392.00 143,573.76 147,880.97 152,317.40

Utilities
Air con 176,000.00 195,520.00 250,931.20 260,968.45
Lights 22,000.00 24,440.00 31,366.40 32,621.06
Water 165,000.00 183,300.00 235,248.00 244,657.92

Other Electricity 16,500.00 18,330.00 23,524.80 24,465.79

Phone 43,200.00 47,520.00 47,520.00 52,272.00

Office Supplies 27,500.00 30,550.00 39,208.00 40,776.32

Housing Supplies 53,240.00 59,144.80 75,906.69 78,942.96

Total Operating Expenses 2,550,391.54 2,657,520.71 2,968,826.19 3,058,135.05

Operating Income (147,793.54) (152,754 71) 798,639.75 709,330.89

Other Income
Function Room 314,000.00 314,000.00 314,000.00 578,000.00
Rent from
Concessionaire 240,000.00 240,000.00 240,000.00 300,000.00

Gross Income 406,206.46 401,245 29 1,352,639 75 1,587,330.89

Tax Expense 150,424.75 144,699.65 432,844 72 507,945.89

Net Income 255,781.71 256,545.64 919,795.03 1,079,385.01

46 How to Prepare Project Feasibility Studies

YearS

4,008,000.00

1,768,953.60
5,776,953.60

134,136.00
638,727 55
772,863.55

5,004,090.05

2,013,449.32

321.472.69
19,808.96

156,886.92

322,880.96

40,360.12
302,700.90

30,270.09
57,499.20
50,450.15
97,671.49

3,413,450.80

1,590,639.25

578,000.00

300,000.00

2,468,639.25

789,964.56

1,678,674.69

::.
Receipts

Collections from Customers
Payments

To suppf!eCS
To employees
F 01 income lax

Total Cash payments
Net Cash Inflow from

()pela!rig Adlvi1ies

Cash ~kom In~ Activities
WoOOng Capital (2 months)
Busiless RegislratiorJ

Permit Fees
Construction Cost Eslima!e
Other Cons!ruction Materials from

3 RuOOown Antique Houses
Antiques & lnteoor ~
Landscaping & Ex!eoor Design
Materials & Equipments
Net Cash OutfMJw from

inves!Nlg adivilies
Net Cash flow before financing
Cash~from

FmanclngActivilies
Equity
Total Cash in~ from

financing activities

NETCASH
Beginning Cash
Ending Cash

Measurement

Payback Period

Net Present Value

Exhibit 2-2
Casa Fernandina

Cash Flow Statement
for the Year Ended December 31, 2004

Yearo Year 1 Year2 Year3

3,363,560.00 3,471,560.00 4,901,501.90

987,037.50 1,133,300.56 1,450,293.86

1,568,486.85 1,615,541.46 1,ffi,095.60

150,424.75 144,699.65 432,844.72

2,705,949.10 2,893,541.67 3,660,234.18

657,610.90 578,018.33 1,241,267.72

(362,960.40) 0 0 0

(5,000.00) 0 0 0

(2,537,690.35) 0 0 0

(600,1XM!OO) 0 0 0

(853.850.00) 0 0 0

(326,1XM!OO) 0 0 0

(788,006.00) 0 0 0

(5,473 500.75) 0 0 0

(5,473,506.75) 657,610.90 578,018.33 1,241,267.72

5,500,000.00

5.500,1XM!OO

26,493.25 574,126.38 578,018.33 1,240,005.08

0.00 26,493.25 600,619.63 1,178,637.97

26,493.25 600,619.63 1,178,637.97 2,418,643.05

Decision Criteria

Greater than required by the investor

Greater than or equal to zero

Internal Rate of Return Greater than or equal to the
prevailing rate of Treasury Bills

Year4 YearS

5,225,501.90 6,654,953 60
000 000

1,405,723.65 1,851 ,392.35
1,830,408.47 2,013,449.32

507,945.89 789,964.56
3,744,078.00 4,654,800.22

1,481,423.90 2,000,147.38

0 0

0 0
0 0

0 0
0 0
0 0
0 0

0 0
1,481,423.90 2,000,147.38

1,400,857.70 1,998,536.47
2,418,643.05 3,819,500.74
3,819,500.74 5,818,037 I2

Value

4 years & 7 months

Php3,054,196

20%

Financial Study 47

Page 55

REFERENCES

Mayer, Raymond R. Production Management (2nd Edition). Tokyo: McGraw-
Hill Book Company, 1968.

McCarthy, E. Jerome. Basic Marketing: A Managerial Approach (Sth Edition).
Illinois: Richard D. Irwin, Inc., 1975

Parel, Cristina, et. AI. Introduction to Statistical Methods (With Application).
Manila: Macaraig Publishing Company, Inc., 1966.

Roberto, Eduardo L. Applied Marketing Research (A Seminar Manual). Makati,
Metro Manila, 1988

Burns, Alvin S. & Ronald F. Bush. Marketing Research (3'a Edition). NJ:
Prentice Hall, Inc., 2000

Edmunds, Holly. AMA Complete Guide to Marketing Research for Small
Business. Illinois: NTC Business Books, 1996.

Walonick, DavidS., Survival Statistics. Minneapolis: StatPac, Inc.,1997

Malhotra, N aresh, K., Marketing Research, An Applied Orientation, International
Edition(3'd Edition). Prentice Hall, Inc. 1999.

Roberto, Ned, User-friendly Marketing Research (2"a Edition). Life Cycle Press,
June 2002.

ADB, Pre-feasibility Study Report Format (revised version 3), December 4, 2004.

Dy, Rolando, Handout on How to Prepare a Project Study, 2004.

Industrial Environmental Management, Environmental Impact Analysis
Participant's Manual.

Hunger, David J., Wheelen, Thomas L., Strategic Management (51h Edition).
Addison Wesley Publishing Co. 1996.

98 How to Prepare Project Feasibility Studies

WEBSITES

http:/ ;www.su rveysystem .com
http:/ /home.ubalt.com
http:/ ;www.smallbusinessresources.com
http://www. va-interactive.com
http:/ jobelia.jde.aca.mmu.ac.uk
http:/ /www.emb.com
http:/ /www.gdrc.org

References 99

Page 56

I

Project Management Team

Paz Resurreccion M. Alip
Project Supervising Fellow

Joanne Q. Nuque
Project Manager

Shirley T. Cubilla
Project Assistant

Dr. Cayetano W. Paderanga
Dr. Eulogio A. Castillo

Technical Reviewers

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