Topic №11: Evaluation of financial and economic efficiency of investment projects


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presentation-11 OFI

Indicators

A

B

The cost of the technologic line, C.U.

150

210

Operational expenditures, C.U./product

1,7

1,3

Non-operational expenditures, C.U.

10

15

Price, C.U./product

2,2

2,2

Task 5 . An enterprise considers the feasibility of acquiring a new production line :
  • the cost of the line is 10 C U.; period - 5 years;
  • amortization on equipment is calculated on a straight-line depreciation method ;
  • liquidation value at the end of operation will supposedly 15 % of the cost of the production line;
  • costs of liquidation is 6% of the liquidation value .

  • Possible annual sales respectively : 6.8 , 7.5, 8.4 , 8.0 , 6.4 CU. Costs for production (without amortization) in the 1st year of operation line 3.4 CU., followed by annual growth of 3%.
    Income tax rate - 24%.
    Financial and economic position of the enterprise is that the profitability of the advanced capital is 22 % , the "price" of capital - 19% .
    Management of the company does not intend to implement projects with a payback period of more than three years.
    Using static and dynamic methods for assessing the effectiveness of investments , determine the feasibility of the project.

In classical investment analysis, there are 3 types of mathematical models that determine the parameters:
  •  amount (NV, NPV, MNPV);
  • profitability (IRR, MIRR);
  • profitability index (DPI);
  • payback period (PP, DPP)

  • using cash flows generated by the investment project.

Model No. 1. The model includes only cash flows (CF and I). In this case determined the parameters NV and Payback.
Model No. 2. The model includes cash flows and the barrier rate (CF, I and R(bar)). In this model determined the parameters IRR, NPV, DPI, DPP and MIRR (bar); also added accounting for changes in the value of money over time(using R (bar)).
Model No. 3. The model includes cash flows, a barrier rate and a reinvestment rate (CF, I, R (bar) and R (reinv)). In this model determined the parameters MIRR and MNPV; added, in addition to accounting for changes in the value of money over time, accounting for the rate of return of reinvestments (using R (reinv)).
Depending on the current situation, the option of calculating the forecast of barrier rates is selected, giving the most reliable result (data forecast and calculation procedure):
- the barrier rate only taking into account inflation;
- the barrier rate, taking into account the weighted average cost of capital, WACC;
- the barrier rate taking into account risks;
- the barrier rate only taking into account the currency index.

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