Makeevka Economics and Humanities Institute
Department of Enterprise Economics
Practical task
in the discipline “Investment activity”
Makeevka –2009
Individual task No. 7
The company is considering the feasibility of implementing investment project, the main indicators of which are presented in the table (for three options).
The company uses the straight-line depreciation method. The income tax rate is 25%.
Assess the economic efficiency of the investment project by calculating the net present value and return on investment index if the project discount rate is 12% (or 15%).
Graphically and calculatedly determine the break-even point of the project.
Table. Initial data for assessing the effectiveness of the project (for three options) Indicators Values of indicators for options 1 2 3 Sales volumes for the year, pcs. 2900 4300 3240 Unit price, thousand UAH 0.33 0.3 0.31 Variable costs for producing a unit of product, thousand UAH 0.23 0.2 0.22 Annual fixed costs excluding depreciation of fixed assets, thousand UAH. 45 57 58 Annual depreciation rate of fixed assets, % 8 8 8 Initial investment costs, thousand UAH 420 510 690 - including fixed assets, thousand UAH. 410 450 520 Project implementation period, years 7 8 8
Draw conclusions by characterizing the level investment attractiveness and investment risk of the project.
Solution:
1. Let's calculate the net discounted income from the project implementation according to three options.
Let us determine the size of cash flows during the implementation of the project in the first option. Let's enter the data in table 1.
Table 1. Cash flows of the investment project implementation code Article 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 1 Sales proceeds, UAH. 957000 957000 957000 957000 957000 957000 957000 2 Investments, UAH 420000 3 Variable costs, UAH 667000 667000 667000 667000 667000 667000 667000 4 Fixed costs, UAH 45000 45000 45000 45000 45000 45000 45000 5 Depreciation 32800 32800 32800 32800 32800 32800 32800 6 Profit(01- 03-04-05) 212200 212200 212200 212200 212200 212200 212200 9 Net profit (06*0.75) 159150 159150 159150 159150 159150 159150 159150 9 Net cash flow, UAH(05+09) -420000 191950 191950 191950 191950 191950 191950 191950
Let us determine the discounted indicators for assessing the economic efficiency of the project if the project discount rate is
i =12%.
NPV = />– Iс, where (1)
/>
Ic - primary investment.
i – discount rate.
NPV = />– 420000 = 876013.07 - 420000= 456013.07 UAH.
Return on investmentR.
R=/>, (2)
R=/>= 2.08 R >1
NPV = />– 420000 = 798592.57 - 420000 = 378592.57 UAH.
Profitability R=/>= 1.90
Let us determine the size of cash flows during the implementation of the project in the second option. We will enter the data in table 2.
Table 2. Cash flows for the implementation of an investment project code Article 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 1 Sales proceeds, UAH 1290000 1290000 1290000 1290000 1290000 1290000 1290000 1290000 2 Investments, UAH 510000 3 Variable costs, UAH 860000 860000 860000 860000 86000 0 860000 860000 860000 4 Fixed costs, UAH 57000 57000 57000 57000 57000 57000 57000 57000 5 Depreciation 36000 36000 36000 36000 36000 36000 36 000 36000 6 Profit(01-03-04-05) 337000 337000 337000 337000 337000 337000 337000 337000 9 Net profit (06*0.75) 252750 252750 252750 252750 252750 252750 252750 252750 9 Net cash flow, UAH(05+09) -510000 288750 288750 288750 288750 288750 288750 288750 288750
NPV = />– Iс, where (1)
/> - cash receipts for the kth year;
Ic - primary investment.
i – discount rate.
In our case
NPV = />– 510000 = 1434405.98 - 510000 = 924405.98 UAH.
The net present value NPV is positive, the project is suitable for implementation.
Return on investmentR.
R=/>, (2)
R=/>= 2.81 R> 1
With a discount rate of 15%:
NPV = />– 510000 = 1295714.09 - 510000= 785714.09 UAH.
Profitability R=/>= 2.54
Let us determine the size of cash flows during the implementation of the project in the third option. We will enter the data in table 3.
Table 3. Cash flows for the implementation of an investment project code Article 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 1 Sales proceeds, UAH 1004400 1004400 1004400 1004400 1004400 1004400 1004400 1004400 2 Investments, UAH 690000 3 Variable costs, UAH 712800 712800 712800 712800 71280 0 712800 712800 712800 4 Fixed costs, UAH 58000 58000 58000 58000 58000 58000 58000 58000 5 Depreciation 41600 41600 41600 41600 41600 41600 41 600 41600 6 Profit(01-03-04-05) 192000 192000 192000 192000 192000 192000 192000 192000 9 Net profit (06*0.75) 144000 144000 144000 144000 144000 144000 144000 144000 9 Net cash flow, UAH(05+09) -690000 185600 185600 185600 185600 185600 185600 185600 185600
Let us determine the discounted indicators for assessing the economic efficiency of the project if the project discount rate is i = 12%.
NPV = />– Iс, where (1)
/> - cash receipts for the kth year;
Ic - primary investment.
i – discount rate.
In our case
NPV = />– 690000 = 921993.94 - 690000= 231993.94 UAH.
The net present value NPV is positive, the project is suitable for implementation.
Return on investmentR.
R=/>, (2)
R=/>= 1.33 R> 1
With a discount rate of 15%:
NPV = />– 690000 = 832846.87 - 690000= 142846.87 UAH.
Profitability R=/>= 1.20
Graphically and by calculation we will determine the break-even point of the project.
/>
Let's calculate the break-even point using the formula:
TB = />, where
TB =/> = 570 pcs.
So, we will choose for implementation the project with the highest profitability indicator. The project according to option 2 has the highest profitability R = 2.81 at a discount rate of 12%.
Individual task No. 1
The enterprise is considering the feasibility of implementing an investment project, the main indicators of which are presented in Table 1.
It is necessary to characterize the level of investment attractiveness and investment risk for each investment option, while:
1. Assess the economic efficiency of the investment project by calculating the net discounted income and the return on investment index if the project discount rate is 10%.
2. Determine net present value if due to the acquisition of new, more advanced equipment variable costs will decrease to 0.19 thousand gr. per unit of production (at the same time, the cost of purchasing fixed assets will increase by 198 thousand grams).
3. Calculate to determine the break-even point for two alternative options.
Table 1. Information for solving the problem Indicators Values Sales volumes for the year, pcs 2950 Price per unit of production, thousand UAH 0.3 Variable costs for producing a unit of product, thousand UAH 0.21 Annual fixed costs excluding depreciation of fixed assets, thousand UAH. 59.6 Annual depreciation rate of fixed assets, % 7 Initial investment costs, thousand UAH 740 - including fixed assets, thousand UAH. 550 Project implementation period, years 7 Income tax rate, % 25
Solution:
The company is considering the implementation of two investment projects: the data for the first are shown in Table 1, the second is characterized by the acquisition of more advanced equipment (variable costs will decrease to 0.19 thousand UAH per unit of production, and the cost of purchasing fixed assets will increase by 198 thousand UAH).
1. Let us evaluate the economic efficiency of the implementation of the first investment project. Let's determine the amount of cash flows during the project implementation. We will enter the data into table 2.
Table 3. Cash flows from the implementation of the investment project code Article 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 1 Sales proceeds, UAH. 885000.0 885000.0 885000.0 885000.0 885000.0 885000.0 885000.0 2 Investments, UAH 740000.0 3 Variable costs, UAH 619500.0 619500.0 619500.0 61950 0.0 619500.0 619500, 0 619500.0 4 Fixed costs, UAH 59600.0 59600.0 59600.0 59600.0 59600.0 59600.0 59600.0 5 Depreciation 38500.0 38500.0 38500.0 38500.0 38500.0 38500.0 38500.0 6 Profit (01-03-04-05) 167400.0 167400.0 167400.0 167400.0 167400.0 167400.0 167400.0 7 Net profit (06*0.75) 125550.0 125550, 0 125550.0 125550.0 125550.0 125550.0 125550.0 8 Net cash flow, UAH(05+07) -740000.0 164050.0 164050.0 164050.0 164050.0 164050.0 16 4050.0 164050 .0
NPV = />– 740000 = 798664.1 -740000= 58664.1 UAH.
Return on investmentR.
R=/>= 1.08 R> 1
The net present value NPV is positive, the project is suitable for implementation, but the profitability of the project is low, slightly more than 1.
2. Let us determine the size of cash flows during the implementation of the project in the second option if, due to the acquisition of new, more advanced equipment, variable costs decrease to 0.19 thousand UAH. per unit of production (at the same time, the cost of purchasing fixed assets will increase by 198 thousand UAH). Let us assume, since this condition does not stipulate additionally, that by the amount of increase in fixed assets the total amount investments (amount working capital remains unchanged).
Table 3. Cash flows from the implementation of the investment project code Article 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 1 Sales proceeds, UAH. 885000.0 885000.0 885000.0 885000.0 885000.0 885000.0 885000.0 2 Investments, UAH 938000.0 3 Variable costs, UAH 560500.0 560500.0 560500.0 56050 0.0 560500.0 560500, 0 560500.0 4 Fixed costs, UAH 59600.0 59600.0 59600.0 59600.0 59600.0 59600.0 59600.0 5 Depreciation 52360.0 52360.0 52360.0 52360.0 52360.0 52360.0 52360.0 6 Profit (01-03-04-05) 212540.0 212540.0 212540.0 212540.0 212540.0 212540.0 212540.0 7 Net profit (06*0.75) 159405.0 159405, 0 159405.0 159405.0 159405.0 159405.0 159405.0 8 Net cash flow, UAH(05+07) -938000.0 211765.0 211765.0 211765.0 211765.0 211765.0 21 1765.0 211765 .0
Let us determine the discounted indicators for assessing the economic efficiency of the project; the project discount rate is i = 10%.
NPV = />– 938000 = 1030960.7-938000= 92960.7 UAH.
Return on investmentR.
R=/>= 1.1 R> 1
By calculation we will determine the break-even point of the project using the formula:
TB = />, where
TB – break-even volume, pcs;
PI – fixed costs, UAH;
CI – price per unit of production, UAH;
PerII – variable costs per unit of production, UAH.
TB1=/> = 662 pcs.
TB2=/> = 542 pcs.
By all indicators, the second project is more attractive, gives higher absolute income, slightly higher profitability, has large supply strength. We accept the implementation of the second project.
Individual task No. 3
The company is planning to purchase a new production line. Data characterizing the level of production and sales of products for three alternative investment options are presented in Table 3.
Using this data, it is necessary to justify the safest investment option, while:
1. For each alternative investment option, find the break-even point.
2. Construct a break-even chart for each investment option.
3. Determine the return on investment if it is known that, according to optimistic estimates, the sales volume will be 140% of the break-even point (probability 35%), the expected sales volume is planned to be 15% more than the break-even point (probability 0.5), according to pessimistic estimates, the sales volume will be 5% below the break-even point (probability 0.15).
Table. Initial data for assessing the effectiveness of the project (according to three options) Indicators Values of indicators Option 1 Option 2 Option 3 Annual fixed costs, UAH. 350000 940000 740000 Variable costs for production of a unit of production, UAH 18 12 16 Price of a unit of production, UAH 31 31 31 Necessary investments, UAH. 2300000 2750000 2600000
Solution:
By calculation we will determine the break-even point for each alternative option using the formula:
TB = />, where
TB – break-even volume, pcs.;
PI – fixed costs, UAH;
CI – price per unit of production, UAH;
PerII – variable costs per unit of production, UAH.
For the first option TB1 = /> = 26923 pcs.
For the second option TB2= />= 49473 pcs
For the third option TB3= />= 49333 pcs
2. Let's build a break-even chart for each investment option (Fig. 1, Fig. 2, Fig. 3).
Obviously, the graphs confirm the calculated data.
3. Let us determine the return on investment if it is known that, according to optimistic estimates, the sales volume will be 140% of the break-even point (probability 35%), the expected sales volume is planned to be 15% more than the break-even point (probability 0.5), according to pessimistic estimates, the sales volume will be 5% below the break-even point (probability 0.15).
Since in our case the determination of sales volume is probabilistic, we will find the average sales volume using the formula:
/>, where
/> - average sales volume,
/> - sales volume,
/> - probability.
/>26923/>1.4/>0.35+26923/>1.15/>0.5+26923/>0.95/>0.15 = 32509 pcs.
Picture 1
/>
/>49333/>1.4/>0.35+49333/>1.15/>0.5+49333/>0.95/>0.15 = 59569 pcs.
To determine the profitability of an investment R, it is necessary to calculate the ratio of cash inflows to cash outflows (in our case, the ratio of gross revenue to the amount of required investments).
R=/>,
R1=/>= 0.44 R
R2=/>= 0.67 R
Figure 2
/>
R3=/>= 0.71 R
The profitability of all three projects is less than one. Under these conditions, none of them can be recommended for implementation. However, it should be taken into account that according to the terms of the task, the implementation of projects is considered only for one year. In fact, investments provide returns over several years. If we consider projects over a longer period, then profitability will certainly increase and reach acceptable values. In this case, the third option is the most interesting (R is maximum).
Figure 3
/>
IN Federal law"About investment activities V Russian Federation carried out in the form of capital investments”, the following definition of an investment project (hereinafter referred to as IP) is given; “Investment project - justification of economic feasibility, volume and timing of capital investments, including the necessary design - estimate documentation, developed in accordance with the legislation of the Russian Federation and duly approved standards (norms and rules), and
also a description of practical actions for making investments (business plan).”
An investment project is a set of systemically united intentions, documents and practical actions to achieve the goals of investment investments, to ensure specified financial, economic, production and social results.
Depending on the areas of investment and the goals of their implementation, investment projects can be classified into production, scientific and technical, commercial,
financial, environmental, socio-economic.
Industrial investment projects involve investing in the creation of new, expansion, modernization or reconstruction of existing fixed assets and production facilities for various fields national economy, including housing, social services, etc.
Scientific and technical investment projects are aimed at the development and creation of new highly efficient products with new properties, new highly efficient machines, equipment, technologies and technological processes. The development and implementation of scientific, technical and production projects are often interconnected. The implementation of production projects is often a continuation of the implementation of scientific and technical projects.
An indispensable condition for the prosperity of the country, the national economy and the regional economy is the implementation, first of all, of scientific, technical innovation and investment projects. The implementation of such projects creates conditions for the qualitative renewal of fixed assets, which are the basis for the production of various goods and the provision of services, and the formation of newly created value.
The essence of commercial investment projects is to make a profit on investments made as a result of the purchase, sale and resale of any products, goods, services.
Because outside material production newly created value is not formed, but is only redistributed, then the profitability of commercial investment projects is the result of redistribution of the newly created value in the sphere material value. The effect of the implementation of commercial investment projects can become capital-forming if the income and profit received are a source of financial support for production or scientific and technical investment projects.
Financial investment projects are associated with the acquisition, formation of a portfolio of securities and their sale, purchase and sale of debt financial obligations, as well as with the issue and sale of securities. There are three possible cases here.
In the first case, the investor-buyer and holder of securities receives dividends on them and increases his financial capital. The source of capital increase is the implementation of production investment projects.
In the second case, the investor-buyer and seller of debt obligations also increases his financial capital. At the same time, the increase total capital does not occur in the national economy, but is redistributed in the sphere of financial circulation.
In the third case, the implementation of a financial investment project is directly related to and is an integral part of the implementation of a production investment project. An investor, implementing a project for the issue and sale of securities, solves the problem of financial support for production
investment project.
Environmental investment projects include projects that result in the construction of environmental facilities or improved parameters of existing production facilities, enterprises, and operating services in terms of harmful emissions into the atmosphere and impacts on nature.
The result of the implementation of socio-economic investment projects is the achievement of a certain socially useful goal, including a qualitative improvement in the state of healthcare, education, culture in the country and regions.
The implementation of investment projects related to the creation of new, expansion, reconstruction, technical re-equipment of existing enterprises or production facilities requires the implementation of a number of measures for the acquisition, leasing, allotment and preparation land plots for construction, carrying out engineering surveys and commissioning, development project documentation for the construction or reconstruction of buildings and structures, the acquisition of technological equipment, the provision of the created (re-equipped or repurposed) enterprise (production) with the necessary personnel, raw materials, components, organization of sales of products intended for production. The implementation of these measures in conjunction with the organizational and technological support for the implementation of the project is an investment process.
The investment process includes a fairly wide range of work - from the idea of a project to the possibility of including the invested enterprise in a system of a certain type and type of market.
The creation and implementation of an investment project includes the following stages:
formation of an investment plan (idea); pre-project study of investment
opportunities;
business plan development;
acquisition or lease and disposal land plot; preparation of contract documentation; preparation of project documentation; implementation of construction and installation works, including
commissioning;
operation of the facility.
An enterprise’s investments can cover both the full scientific and technical cycle of creating a product, and its elements (stages): Scientific research, design and engineering
work, reconstruction and expansion of the existing
production, creation of new production, organization of sales of goods, etc.
Formation of an investment plan (idea) includes:
birth and preliminary justification of the plan; innovation, patent and environmental analysis technical solution(object of equipment, resource, service), the organization of production of which is provided for by the planned project;
creation of a dealer network;
creation of service and repair centers; ongoing monitoring economic indicators functioning of the created enterprise, production, facility.
When making investments, investors solve the following main tasks:
1. Growth of the production and economic potential of enterprises and organizations as a result of effective
investment activities. The development strategy of any enterprise (organization) - both financial and production - from the moment of its creation involves a constant increase in the volume of production and provision of services, expansion of the scope of activity and positions in the markets of goods and services, industry and regional diversification. The implementation of this strategy is ensured, first of all, through investment activities. As a result, it is updated
the production potential of the enterprise (organization) is qualitatively improved and quantitatively increased,
fixed assets, the technical level of production and service increases and, ultimately, grows economic potential. This applies to both goods-producing and industrial services (transportation of goods, electricity, gas, etc.), communal services (provision of office space, housing, etc.), socio-cultural (tourism, sports maintenance, cinema and concert services, etc.), financial and economic (insurance, banking, stock exchange services, etc.) services to enterprises and organizations.
- 2.Maximizing financial returns. The main final indicators of the efficiency of all production and economic activities of enterprises, including investment, are the amounts of income and profit received. Receiving income and profit are necessary conditions not only for ensuring the consumption fund (the fund for wages of workers, their incentives), but also the accumulation fund, with the help of which the development and increase in the efficiency of production potential is carried out. The growth rate of these funds depends entirely on the invested capital and the efficiency of its use.
- 3.Optimization of investments. This task is directly related to the task of obtaining maximum return on investment. Return on investment in various areas production and economic activities in various regions of the country, in international projects, etc. differs significantly, therefore it is especially important to ensure the effectiveness of not only a separate production and investment project, but also to optimize the distribution of investments in the development of the economy of regions, industries, and the country as a whole, taking into account international cooperation in production and management. The considered optimization relates to a greater extent to public sector economics, regional economies, industrial economies, as well as large investment, financial and production organizations. Return on investment from various legal and individuals in shares and securities depends on the policy of forming their portfolio.
- 4. Minimizing risk when implementing investment projects. Entrepreneurship in a market economy is always associated with uncertainty of market conditions and prospects, and therefore with a certain degree of risk. This applies most of all to investments, the return on which may occur in a few years.
The fact is that the market environment is characterized by volatility and unpredictability. There are many such examples: cessation of supplies of cheap energy resources to the market; the appearance on the market of cheaper and less energy-intensive vehicles; the “release” of new types of electrical equipment and new types of computers onto the market; changes in tax system etc. In other words, in market conditions, risk is almost inevitable.
When making real (capital-forming) investments, there is always uncertainty associated with the possibility of adverse situations and consequences arising during the implementation of the project. Incompleteness or inaccuracy of information on volumes and prices of product sales, purchase prices of raw materials, components, etc. when determining the volume and timing of capital investments, it leads to an increase in the degree of risk when implementing investment projects.
The risk is especially great if capital investments
are sent to enterprises that use natural raw materials and materials in their production process (mining enterprises, processing plants, metallurgical plants, etc.). In this case, the process of ore mining itself may become more expensive (when it is necessary to carry out deep mining of the deposit, the position of the ore layer, rock hardness, water supply, etc. will change), the quality of ore raw materials may deteriorate (decrease in the content of a valuable component in the ores, the appearance of
accompanying components, i.e. change in material composition). All this, in general, naturally leads to higher prices for products and a decrease in the efficiency of capital investments. Similar unpredictability also exists in the prices of electricity, fuel and other resources.
An error in the price of a product associated with a certain unpredictability of just 1% leads to losses amounting to at least 1% of the proceeds from the sale of the product. With product profitability equal to 10-12%, with a price error of 1%, losses in profit can amount to 5-10%.
Therefore, when making decisions on the implementation of specific investment projects, in-depth and comprehensive research is necessary to significantly reduce the degree of investment risk and the possible financial, property and other losses associated with it.
- 5. Providing financial stability and the solvency of the firm or company in the process of carrying out investment activities. Investments in the implementation of large projects involve distraction financial resources in large quantities and for a sufficiently long period of time. This may lead to a decrease in the solvency of enterprises and organizations under current business transactions, payments to the budget, and ultimately even bankruptcy. Besides, production organizations When implementing large investment projects, as a rule, they attract loans and borrowed funds at interest. And having a large share borrowed money in the assets of organizations can lead to a decrease in their financial stability in the future. In this regard, when forming investment sources, accepting lending conditions, assessing the effectiveness and timing of investment projects, it is necessary to conduct an in-depth analysis and forecast the state of the current sustainability of the enterprise at all stages and phases of their implementation.
- 6. Finding ways to speed up the implementation of investment projects. The time factor in any economy, and especially in a market economy, plays a particularly important role. Reducing the time for implementation of investment projects accelerates:
return on financial resources and other capital invested by investors by accelerating the production of products and their sales;
the terms of use of the loan and other borrowed funds, and therefore the amount of interest paid on them;
calculation of depreciation amounts. As a result, accumulation accelerates depreciation funds and profits, which are the sources further development and technical improvement of production.
In addition, accelerating the implementation of investment projects significantly reduces the degree of risk in their implementation.
It should be noted that the main objectives of investment projects are closely interrelated and, in general, solve the main task - increasing the efficiency of investment
Based on a study of the market for products produced at the enterprise, the possibility of increasing effective demand for it has been established. In this regard, the company is considering the feasibility of purchasing a new production line to increase production in order to increase sales. The assessment of a possible increase in sales volume was established based on an analysis of data on the potential capabilities of competitors. The cost of the line (capital investments for the project) is $18,530; service life - 5 years; profit minus tax on it from the sale of fixed assets at the end of their service life will be $926.5;. cash flows(profit minus tax on it and depreciation on the cost of fixed assets put into operation due to capital investments) is projected for years in the following amounts: $5406, $6006, $5706, $5506, $5406. The discount rate for determining the present value of cash flows is assumed to be 12% and 15%. The marginal rate for assessing the estimated level of the internal rate of return is set at 16%. The payback period for capital investments acceptable for an enterprise, calculated based on data on cash flows and the current value of cash flows, is 5 years. Is this project feasible?
2.2. Determining current net worth
a) At a discount rate of 12%.
b) At a discount rate of 15%.
2.3. Determining the internal rate of return
Table 2.1.
Initial data for calculating the IRR indicator.
|
Cash flows, $ | |||||
Based on the calculations given in table. 2.1, we can conclude that the function NPV=f(r) changes its sign over the interval (15%,16%).
2.4. Determination of the payback period (based on cash flow data)
The investment is $18,530 in year 0. The five-year cash flows are: $5406, $6006, $5706, $5506, $5406. Revenues will cover investments for 4 years. For the first 3 years, income is:
$5406 + $6006 + $5706 = $17118
For 4 years it is necessary to cover:
$18530 - $17118 = $1412,
$1412/ $5506 = 0.26 (approximately 4.1 months).
The total payback period is 3 years 4.1 months.
2.5. Determination of the payback period (based on the present value of cash flows)
a) At a discount rate of 12%.
The income will cover the investment for the 5th year. For the first 4 years, income is (data taken from Table 2.1):
$4826,79 + $4787,95 + $4061,21 + $3507,01 = $17182,96
For 5 years it is necessary to cover:
$18530 - $17182,96 = $1347,04,
$1347.04 / $3071.59 = 0.44 (approximately 5.4 months).
The total payback period is 4 years 5.4 months.
b) At a discount rate of 15%.
The income will cover the investment for the 5th year. For the first 4 years, income is:
$4700,87 + $4550 + $3753,95 + $3146,29 = $16151,11
For 5 years it is necessary to cover:
$18530 - $16151,11= $2378,89,
$2378.89 / $2689.55 = 0.88 (approximately 10.7 months).
The total payback period is 4 years 10.7 months.
In accordance with the goal, the main tasks were identified: - to study theoretical basis investment project analysis; - give an organizational and economic analysis of Eldorado LLC; - analyze the feasibility of implementing the investment project; - calculate economic efficiency project. The object of the study is Eldorado LLC subject ...
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| Difficulty of choice investment strategy associated with the search and evaluation of alternative investment solutions that best meet the goals of the enterprise and the prospects for its development. The most important element financial strategy enterprises have a strategy for the formation of investment resources of the enterprise, which should be based on the following principles: taking into account the prospects for the development of investment activities. ensuring compliance of the volume of attracted investment resources with the volume of investment needs of the enterprise. security... | |||
| 16054. | Methodology for assessing the effectiveness of an investment project | 863.06 KB | |
| An investor's investment of his own or borrowed money to achieve business goals related to generating profit is called investment. Project management is not a modern invention. | |||
| 12501. | Evaluating the effectiveness of the investment project of Jupiter LLC | 142.02 KB | |
| However, in terms of medium- and long-term growth, the role of investment increases dramatically. This is due to the need to solve problems associated with deep structural and reproductive imbalances left over from the planned economy: increased energy intensity of production, inefficient location of enterprises, unsatisfactory use of land resources, high share uncompetitive products, hypertrophied development of heavy industries). | |||
| 3259. | Feasibility study of an energy supply investment project | 516.6 KB | |
| The development of a feasibility study for an investment project involves, first of all, ensuring high efficiency in the use of the resources available to the enterprise: achieving maximum economic results with minimal total costs of production and sales of its products. | |||
The company decided to organize the production of plastic building shells. The design of the site for their production provides for construction and installation work (construction of production facilities, acquisition and installation of technological equipment) within three years. The operation of the site and the production of shells are designed for 11 years. The site is planned to begin operation immediately after completion of construction and installation work. Other source data are given in table 3.1
Table No. 3.1
| Year | Capital investments | Volume of production | Unit price | Fixed costs (without depreciation) | Variable costs | Taxes | Liquidation cost. |
| 0th | |||||||
| 1st | 1,8 | ||||||
| 2nd | 2,3 | ||||||
| 3rd | 1,9 | ||||||
| 4th | |||||||
| 5th | 1,08 | 1,06 | 1,03 | 1,05 | 1,18 | ||
| 6th | 1,15 | 1,11 | 1,05 | 1,08 | 1,36 | ||
| 7th | 1,21 | 1,15 | 1,07 | 1,12 | 1,5 | ||
| 8th | 1,26 | 1,20 | 1,09 | 1,17 | 1,74 | ||
| 9th | 1,30 | 1,24 | 1,11 | 1,19 | 2,0 | ||
| 10th | 1,33 | 1,27 | 1,12 | 1,22 | 2,2 | ||
| 11th | 1,35 | 1,29 | 1,14 | 1,24 | 2,3 | ||
| 12th | 1,36 | 1,30 | 1,15 | 1,27 | 2,3 | ||
| 13th | 1,1 | 1,33 | 1,16 | 1,29 | 1,8 | ||
| 14th | 0,8 | 1,35 | 1,18 | 1,32 | 1,05 |
Values of capital investments (K = 8.6), production volume (N np = 15.75), prices (C = 7.3), fixed costs (C n = 2.32), taxes (N = 16.8) , liquidation value (L=10) and discount rate (q n= 0.227) for test work each student are given in table 3.2.
Define indicators of internal rate of return, net present value, return on investment, payback period of investment and object. To establish the economic feasibility of organizing the production of plastic building shells.
During the construction and installation work, the company took advantage of a loan for investment commercial bank, (investment in the project will be carried out at the rate of 60% of credit funds and 40% due own funds). According to the terms of the agreement between the bank and the entrepreneur, the loan will be repaid over 4 years in the following shares (%): 1st year - 30, 2nd year - 25, 3rd - 25, 4th - 20. To use a loan, the entrepreneur must pay the bank for the 1st year 22% of the amount used during the year, for the 2nd - 26%, for the 3rd - 32% and for the 4th - 35%.
Determine how the effectiveness of the project will change when the enterprise uses a commercial bank loan. Draw a conclusion about the impact of credit on investment efficiency.
To determine the effectiveness of investments in project implementation, the following calculation operations are performed.
The internal rate of return indicator is determined:
D i - enterprise income in i-th year life cycle;
K i - capital investment in the facility in the i year;
T is the life cycle of the object from the beginning of construction to the end of its operation in years;
q is an indicator of the internal rate of return, in shares of unity.
The enterprise's income in the i-th year of the object's life cycle is determined by the formula:
(3.2)
N npi - production volume in the i-th year;
T i is the price of a unit of production in the i-th year;
С ni - variable costs per unit of production in the i-th year;
C pos i - fixed costs in the i-th year;
L i is the value of the liquidation value in the i-th year.
2. The net present value indicator is determined using the formula:
(3.3)
q n - cost discounting rate at the start of construction of the facility;
H - reduced net income.
The ROI is determined as follows:
(3.4)
(3.5)
t ok - payback period of investments.
The payback period of an existing facility is calculated using the formula:
t - payback period of the object;
The period of time from the start of investments to the start of operation of the facility.
a) Solving the task without taking into account credit
When starting to solve a task, it is necessary, first of all, to transform the source data, expressed through indices, into absolute numbers. Such settlement transaction for the option under consideration was produced, and its results at the beginning of the corresponding year are presented in Table 3.3.
Filling out the initial information part of the table (the first seven columns) is done by multiplying the index of the indicator by its value with a single index.
The first indicator is the cost per unit of production (C):
C = C n + C village: N = 2.32 + 35.7: 15.75 = 4.587 rub./m 2.
The second indicator is book profit enterprises (P b):
P b =N*(C-S)=15750*(7.3-4.587)=42.735 million/year.
The third indicator is net profit (D)
D=P b - N = 42735 - 16800 = 25935 thousand/rub.
We summarize the results obtained, necessary for further calculations, in table 3.4, which characterizes the costs and results of an entrepreneurial investment project without a loan (thousand rubles).
Table No. 3.3
| Year | Capital investments million rubles. | Production volume million m2/year | Price RUR/m2 | Fast. costs million rubles/m2 | AC costs RUR/m2 | Taxes million rubles | C, rub. per m2 | Pb, million rub. | D million rub. |
| /year | /year | /year | |||||||
| 0th | 8,6 | ||||||||
| 1st | 15,48 | ||||||||
| 2nd | 19,78 | ||||||||
| 3rd | 16,34 | ||||||||
| 4th | |||||||||
| 5th | 15,75 | 7,3 | 35,7 | 2,32 | 16,8 | 4,587 | 42,735 | 25,935 | |
| 6th | 17,01 | 7,738 | 36,771 | 2,436 | 19,824 | 4,598 | 53,416 | 33,592 | |
| 7th | 18,1125 | 8,103 | 37,485 | 2,5056 | 22,848 | 4,575 | 63,898 | 41,050 | |
| 8th | 19,0575 | 8,395 | 38,199 | 2,5984 | 25,2 | 4,603 | 72,270 | 47,070 | |
| 9th | 19,845 | 8,76 | 38,913 | 2,7144 | 29,232 | 4,675 | 81,062 | 51,830 | |
| 10th | 20,475 | 9,052 | 39,627 | 2,7608 | 33,6 | 4,696 | 89,185 | 55,585 | |
| 11th | 20,9475 | 9,271 | 39,984 | 2,8304 | 36,96 | 4,739 | 94,930 | 57,970 | |
| 12th | 21,2625 | 9,417 | 40,698 | 2,8768 | 38,64 | 4,791 | 98,363 | 59,723 | |
| 13th | 21,42 | 9,49 | 41,055 | 2,9464 | 38,64 | 4,863 | 99,109 | 60,469 | |
| 14th | 17,325 | 9,709 | 41,412 | 2,9928 | 30,24 | 5,383 | 74,946 | 44,706 | |
| 15th | 12,6 | 9,855 | 42,126 | 3,0624 | 17,64 | 6,406 | 43,461 | 25,821 |
Let's determine the internal rate of return indicator.
Its calculation is based on the equality of investment investments and net profit, which are reduced to the zero point in time by discounting according to equation (22). Result q=0.32286. At this rate, the total income and total investment investments brought to the beginning of the investment project will be equal and amount to 38,664 thousand rubles.
Table No. 3.4
| Year | Investments | Net profit |
| 0th | ||
| 1st | ||
| 2nd | ||
| 3rd | ||
| 4th | ||
| 5th | ||
| 6th | ||
| 7th | ||
| 8th | ||
| 9th | ||
| 10th | ||
| 11th | ||
| 12th | ||
| 13th | ||
| 14th | ||
| 15th |
2. Let us determine the indicator of net present value (N) using formula (3.3). H = 29563 thousand rubles.
At the same time, the net total present income is 72,763 thousand rubles. The total reduced investments are 43,200 thousand rubles.
Let us determine the return on investment indicator using formula (3.4):
This means that the project, when implemented, will make it possible to completely return everything investment funds and plus receive an income of 68.4% of the total invested amount.
We will determine the payback period of the investment and the object being sold.
We determine the payback period using formula (3.5). It will be 6.1 years.
The payback period for the object itself, in accordance with equation (3.6), will be 2.1 years.
Thus, all the necessary indicators of the investment project have been determined, and we can draw a conclusion about the feasibility of its implementation, since its most important performance parameters ( internal form profitability, net present value, return on investment and payback period) are significantly better than standard values.
B) Solution of task No. 6 taking into account the credit
The solution to the problem begins with determining the actual investments in the implementation of the project, taking into account the repayment of credited funds in accordance with the agreement between the entrepreneur and the bank. The calculation results are summarized in Table 3.5.
Method for filling out this table.
The numbers in the 2nd column represent the amount of investment in the project according to the conditions of the problem.
The numbers in the 3rd column are the enterprise’s own investments in the project (40% of the required investments), the 4th column is investments through a loan from a commercial bank (60% of the required investments).
The fifth column presents the amounts characterizing the repayment of the loan by year under the terms of the agreement, respectively (30%, 25%, 25% and 20%). The entire loan amount is 5100 thousand rubles. will be returned to the bank in portions over three years (1548+ 1290+ 1290+ 1032= 5160).
The 2nd, 3rd and 4th columns of the general array of the 5th column are calculated and filled in similarly. Column 6 contains the sums of the rows in the 5th column.
Table No. 3.5
| year | Investments in the project, thousand rubles. | Sob. plat. per project, thousand rubles | Bank loan, thousand rubles. | Loan repayment by year, thousand rubles. | Loan repayment in general | Prepayments, thousand rubles | |||
| 0th | |||||||||
| 1st | |||||||||
| 2nd | 2786,4 | 4076,4 | 11988,4 | ||||||
| 3rd | 3560,4 | 7172,4 | 13708,4 | ||||||
| 4th | 2941,2 | 9262,2 | 9262,2 | ||||||
| 5th | 1857,6 | 7275,6 | 7275,6 | ||||||
| 6th | 2373,6 | 4824,6 | 4824,6 | ||||||
| 7th | - | - | - | 1960,8 | 1960,8 | 1960,8 | |||
The 6th column contains the sums of the rows of the 5th column.
The last column is filled in by summing the numbers of the 3rd and 6th columns; the sum of the numbers of the 2nd column is exactly equal to the sum of the 7th column and amounts to 60,200 rubles.
Payments for the use of credit resources are established by agreement. In accordance with it, the entrepreneur pays the bank for the first year of using the loan 22% of the total amount, in the second and subsequent years - 26, 32 and 35% of the remaining credit amount. The calculation results are presented in table 3.6.
All numbers in the rows are summed up, and the results are entered in the 4th column of the table. This is the final result of interest payments for the used Bank loan broken down by year. By the amount of these amounts, the income of the entrepreneur will decrease, and for the bank, on the contrary, it will increase.
Determination of the effectiveness of providing a loan for a bank is provided in table 3.7.
To determine the internal rate of return for a bank, it is necessary to solve the equation:
The result of the solution is q = 0.2531.
The efficiency of project implementation with a loan turned out to be higher than without a loan.
Table No. 3.6
| Year | Calculation of loan payments from the remaining amount of the borrowed amount, thousand rubles. * on interest | Value of payment amounts for a loan, thousand rubles | Fee, thousand rubles | |||
| 1st | 5160*22% | 5160*22% | 1141,8 | |||
| 2nd | 3612*26% | 9288*22% | 3612*26%+9288*22% | 2982,48 | ||
| 3rd | 2322*32% | 6501,6*26% | 11868*22% | 2322*32%+6501,6*26%+11868*22% | 5044,416 | |
| 4th | 1032*35% | 4179,6*32% | 8307,6*26% | 9804*22% | 1032*35%+4179,6*32%+8307,6*26%+9804*22% | 6015,528 |
| 5th | 1857,6*35% | 5340,6 *32% | 6862,8*26% | 1857,6*35%+5340,6 *32%+6862,8*26% | 4143,48 | |
| 6th | 2373,6*35% | 4411,8*32% | 2373,6*35%+4411,8*32% | 2242,536 | ||
| 7th | 1960,8*35% | 1960,8*35% | 686,28 |
Table 3.7
| Amount of loans Money, thousand roubles. | year | Loan repayment + interest on loan, thousand rubles. |
| 0th | ||
| 1st | 2689,8(1548+1141,8) | |
| 2nd | 7058,88(4076,4 +2982,48) | |
| 3rd | 12216,82(7172,4 + 5044,42) | |
| 4th | 15277,73 (9262,2 + 6015,53) | |
| 5th | 11419,085 (7275,6 + 4143,48) | |
| 6th | 7076,14 (4824,6 + 2242,54) | |
| 7th | 2647,08 (1960,8 + 686,28) | |
| Total 36120 | Total 58376.52 |