Project Appraisal

 Project investments: Importance and difficulties

 Types of project investments
 Phases of capital budgeting
 Levels of decision making
 Facets of project analysis
 Feasibility study: A schematic diagram
 Key issues in major investment decisions
 Objectives of capital budgeting
 Common weaknesses in capital budgeting
 Capital Investments : Importance and Difficulties

Importance
 Long – term effects
 Irreversibility
 Substantial outlays
Difficulties
 Measurement problems
 Uncertainty
 Temporal spread
 Types of Investments

 Mandatory Investments
 Replacement investments
 Expansion investments
 Diversification investments
 R & D investments
 Miscellaneous investments
Capital Budgeting Process

Planning

Analysis

Selection

Financing

Implementation

Review
 Levels of Decision Making

Operating Administrative Strategic

decisions decisions decisions

 Where is the decision taken Lower level Middle level Top level
management management management

 How structured is the decision Routine Semi-structured Unstructured

 What is the level of resource Minor resource Moderate Major

commitment commitment resource resource
commitment commitment

 What is the time horizon Short-term Medium-term Long-term

 Key Issues in Project Analysis

Potential Market
Market Analysis
Market Share
Technical Viability
Technical Analysis
Sensible Choices
Risk
Financial Analysis
Return
Benefits and Costs in Shadow
Economic Analysis Prices
Other Impacts
Environmental Damage
Ecological Analysis
Restoration Measures
 Feasibility Study : A Schematic Diagram
P Generation of Ideas
r
e
l
Initial Screening
i
m
i
Is the Idea Prima Facie Promising
n Yes No
a
r Plan Feasibility Analysis
y Terminate

W
Conduct Market Analysis Conduct Technical Analysis
o
r
k
Conduct Financial Analysis
E
A
v
n
a Conduct Economic and Ecological Analysis
a
l
l
u
y Is the Project Worthwhile ?
a
s
t Yes No
i
i
s
o Prepare Funding Proposal Terminate
n
 Basic Considerations : Risk and Return

Investment
Return
decisions

Market value
of the firm

Financing
Risk
decisions