ASSIGNMENT ON PROJECT FORMULATION AND APPRAISAL PGPM 21 (COURSE PGPPM)

BY, Ar. Shruti Deshpande REG NO- 212-04-31-10513-2143

DEPARTMENT OF PGPPM NATIONAL INSTITUTE OF CONSTRUCTION MANAGEMENT AND RESEARCH SCHOOL OF DISTANCE EDUCATION 25/1, BALEWADI, N.I.A. POST OFFICE, PUNE- 411045

http://nicmarprojectmanagements.blogspot.in/2012/09/project-formulation-and-appraisal.html

PROJECT FORMULATION AND APPRAISAL

Assignment Any company that has to survive in a competitive environment cannot remain complacent with the present. It has to continuously bring about change in order to adapt to the altered environment. Investment opportunities in India are today perhaps at a peak. Supported by Indias natural strengths, the country offers investment opportunities in excess of $500 billion in diverse sectors over the next five years. Projects that are endeavors to create unique products and services are basically the instruments leading to organizational growth. Projects have a long term impact on the character of the organization. Projects create wealth not only for the organization but also for the nation. Projects, therefore, form a very important part of the organizations strategy for survival & growth and therefore are the main concern of the corporate management. Realizing the tremendous opportunities, the most of the pragmatic organizations are planning to invest in new projects. Every project starts with the perception of an opportunity. The better this is characterized, the easier it will be to judge the levels of expenditure and risk that are justified. Identifying the pattern by which technology creates new products & services and exploiting them early gives the company a significant competitive advantage. In the light of your studies prepare an assignment on project formulation, evaluation and appraisal of a hypothetical project by covering the following:

Market Analysis Technical Analysis Financial Analysis

INTRODUCTION The project evaluation process involves more than just determining a project's expected revenues and profitability; it also involves a study of the key factors that affect a project and their financial impact on the project. In addition, a project evaluation includes strategic evaluation, economic evaluation and social impact evaluation (Refer Exhibit I).

ASPECTS OF PROJECT APPRAISAL While the financial evaluation of a project aims at ascertaining the most efficient strategy for delivering the desired output, the strategic evaluation ensures that the project is consistent with the output objectives of the firm.

PROJECT EVALUATION TECHNIQUES The economic evaluation of the project, however, seeks to ensure that the delivered output is benefiting the public at large. The evaluation of social impact aims at ensuring that the consequences of a project (in terms of employment, output, savings and so on) are beneficial to the public. A HYPOTHETICAL CASE STUDY CELSUS Infrastructure Company is focusing on investments in emerging retail sector throughout India. It has proposed to develop a commercial space in Aurangabad - Maharashtra. This gives an opportunity to enter a market not tested so far by the big players in retail sector and reap benefits of the first footer.

Maharashtra State has established itself among the fastest growing industrial & commercial centers in India. It has made impressive progress in all round development, measured by socio-economic indicators and ranks among the leading states of India. This is one of the most urbanized states in India. Tourism and textiles are the main sectors of the economy. Sizeable percentage of population works in the Middle East and western countries and brings home not only valuable foreign exchange kitty but also a new consumer test of those places. The tourists from India and all over the world are spending much on leisure while on holidays in Maharashtra. This brings us a good opportunity to invest in retail sector.

MARKET ANALYSIS Situational analysis Company proposes to develop a Shopping Mall in Aurangabad-Maharashtra. The market is mainly consisting small-scale retail outlets, virtually monopolized by the sellers. The market also lacks presence of strong cooperative sector. Due to scattered and satellite patterns of development, the city lacks cohesive and homogenous volume of population compared to other Indian cities. However, excellent infrastructure, importance of place, large base of floating population, high purchasing power of consumers and higher level of consumer spending gives a solid base for investment decision. Hence, we decided to develop a commercial space it consisting mainly of following facilities. Hyper market dealing in grocery, and household items

 Branded clothes, textile products, cosmetics. Processed agriculture, horticulture, floriculture products. Beverages and restaurant. Consumer durable goods etc. Handicrafts and antiques / textiles

Secondary Information

The recently concluded 'Indian Census 2011' showed that the population of India has crossed the 1 billion mark and the population of Maharashtra is somewhere around the 110 million. Considered to be one of India's leading states in terms of revenue and contribution to the GDP, the Maharashtra Census 2011 bore some interesting results. Mumbai, a city that is considered to be the financial capital of India is part of the state of Maharashtra and has a population of over 100 million, making it the country's most populous city. Maharashtra also has other cities like Pune, Nashik and Nagpur which are more densely populated than other areas. People from different parts of India over the years have shifted to Maharashtra in general and Mumbai in particular in search of livelihood. Mumbai is one of the major metro cities in India with a widely cosmopolitan culture and a vibrant way of life.

The Maharashtra census 2011 showed that the population of the state is growing by about 16% each year which is slightly below the national average of about 17%. The state of Maharashtra is the third largest state in the country with an area of about .3 million Sq. Km. The state is located in western India and has a long coastline to its west. The state has many places of national importance and some of the prime airports and ports in the country. Maharashtra borders the states of Gujarat, Madhya Pradesh and Karnataka. The state has a sex ratio of about 940 which is fairly equal to the national average. The state has a literacy rate of over 80% which puts it among the top states in terms of literacy.

The Maharashtra census 2011 shows that the state is doing well in terms of literacy rate and sex ratio and continues its march towards being one of the leading states in the country.

The capital city which is also the largest city in the state of Maharashtra is Mumbai. The languages spoken in the Maharashtra state includes Marathi. In total Maharashtra (MH) state comprises 35

districts. The ISOCODE assigned by International Organization for Standardization for Maharashtra state is MH. Maharashtra Population 2011 As per details from Census 2011, Maharashtra has population of 11.23 Crore, an increase from figure of 9.69 Crore in 2001 census. Total population of Maharashtra as per 2011 census is 112,372,972 of which male and female are 58,361,397 and 54,011,575 respectively. In 2001, total population was 96,878,627 in which males were 50,400,596 while females were 46,478,031. Maharashtra Population Growth Rate The total population growth in this decade was 15.99 percent while in previous decade it was 22.57 percent. The population of Maharashtra forms 9.29 percent of India in 2011. In 2001, the figure was 9.42 percent. Maharashtra Literacy Rate 2011 Literacy rate in Maharashtra has seen upward trend and is 82.91 percent as per 2011 population census. Of that, male literacy stands at 89.82 percent while female literacy is at 75.48 percent. In 2001, literacy rate in Maharashtra stood at 76.88 percent of which male and female were 85.97 percent and 67.03 percent literate respectively.

In actual numbers, total literates in Maharashtra stands at 82,512,225 of which males were 46,294,041 and females were 36,218,184.

Maharashtra Density 2011 Total area of Maharashtra is 307,713 sq. km. Density of Maharashtra is 365 per sq km which is lower than national average 382 per sq km. In 2001, density of Maharashtra was 315 per sq km, while nation average in 2001 was 324 per sq km.

Maharashtra Sex Ratio Sex Ratio in Maharashtra is 946 i.e. for each 1000 male, which is below national average of 940 as per census 2011. In 2001, the sex ratio of female was 922 per 1000 males in Maharashtra.

Description

2011

2001

Approximate Population

11.23 Crore

9.69 Crore

Actual Population

112,372,972

96,878,627

Male

58,361,397

50,400,596

Female

54,011,575

46,478,031

Population Growth

15.99%

22.57%

Percentage of total Population

9.29%

9.42%

Sex Ratio

946

922

Child Sex Ratio

883

953

Density/km2

365

315

Density/mi2

946

815

Area km2

307,713

307,713

Area mi2

118,809

118,809

Total Child Population (0-6 Age)

12,848,375

13,671,126

Male Population (0-6 Age)

6,822,262

7,146,432

Female Population (0-6 Age)

6,026,113

6,524,694

Literacy

82.91 %

76.88 %

Male Literacy

89.82 %

85.97 %

Female Literacy

75.48 %

67.03 %

Total Literate

82,512,225

63,965,943

Male Literate

46,294,041

37,184,963

Female Literate

36,218,184

26,780,980

Maharashtra Urban Population 2011 Out of total population of Maharashtra, 45.23% people live in urban regions. The total figure of population living in urban areas is 50,827,531 of which 26,767,817 are males and while remaining 24,059,714 are females. The urban population in the last 10 years has increased by 23.67 percent.

Sex Ratio in urban regions of Maharashtra was 899 females per 1000 males. For child (0-6) sex ratio the figure for urban region stood at 888 girls per 1000 boys. Total children (0-6 age) living in urban areas of Maharashtra were 5,402,522. Of total population in urban region, 10.63 % were children (06).

Average Literacy rate in Maharashtra for Urban regions was 89.84 percent in which males were 93.79% literate while female literacy stood at 85.44%. Total literates in urban region of Maharashtra were 40,809,128.

Maharashtra Rural Population 2011 Of the total population of Maharashtra state, around 54.77 percent live in the villages of rural areas. In actual numbers, males and females were 31,593,580 and 29,951,861 respectively. Total population of rural areas of Maharashtra state was 61,545,441. The population growth rate recorded for this decade (2001-2011) was 10.34%.

In rural regions of Maharashtra state, female sex ratio per 1000 males was 948 while same for the child (0-6 age) was 880 girls per 1000 boys. In Maharashtra, 7,445,853 children (0-6) live in rural areas. Child population forms 12.10 percent of total rural population.

In rural areas of Maharashtra, literacy rate for males and female stood at 86.39 % and 67.38 %. Average literacy rate in Maharashtra for rural areas was 77.09 percent. Total literates in rural areas were 41,703,097.

Description

Rural

Urban

Population (%)

54.77 %

45.23 %

Total Population

61,545,441

50,827,531

Male Population

31,593,580

26,767,817

Female Population

29,951,861

24,059,714

Population Growth

10.34 %

23.67 %

Sex Ratio

948

899

Child Sex Ratio (0-6)

880

888

Child Population (0-6)

7,445,853

5,402,522

Child Percentage (0-6)

12.10 %

10.63 %

Literates

41,703,097

40,809,128

Average Literacy

77.09 %

89.84 %

Male Literacy

86.39 %

93.79 %

Female Literacy

67.38 %

85.44 %

Maharashtra Census 2011 Conclusion The official census 2011 of Maharashtra has been conducted by Directorate of Census Operations in Maharashtra. Enumeration of key persons including Chief Minister of Maharashtra was also done by officials conducting population census.

Figures of population census 2011 Maharashtra have been represented in chart for your reference at bottom.

Large cities of Maharashtra

Population

Male

Female

Mumbai (Municipal Corporation)

12,478,447

6,736,815

5,741,632

Pune (Municipal Corporation)

3,115,431

1,602,137

1,513,294

Nagpur (Municipal Corporation)

2,405,421

1,226,610

1,178,811

Thane (Municipal Corporation)

1,818,872

966,293

852,579

Pimpri and Chinchwad (Municipal Corporation)

1,729,359

945,953

783,406

Nashik (Municipal Corporation)

1,486,973

784,995

701,978

Kalyan and Dombivali (Municipal Corporation)

1,246,381

650,075

596,306

Vasai Virar (Municipal Corporation)

1,221,233

649,535

571,698

Aurangabad (Municipal Corporation)

1,171,330

610,377

560,953

Navi Mumbai (Municipal Corporation)

1,119,477

611,501

507,976

Large Urban Agglomeration of Maharashtra

Population

Male

Female

Mumbai

18,414,288

9,894,088

8,520,200

Pune

5,049,968

2,659,484

2,390,484

Nagpur

2,497,777

1,275,750

1,222,027

Nashik

1,562,769

824,641

738,128

Aurangabad

1,189,376

620,097

569,279

Largest District by Population in Maharashtra

Population

Male

Female

Thane

11,054,131

5,879,387

5,174,744

Pune

9,426,959

4,936,362

4,490,597

Mumbai Suburban

9,332,481

5,025,165

4,307,316

Nashik

6,109,052

3,164,261

2,944,791

Nagpur

4,653,171

2,388,558

2,264,613

Ahmadnagar

4,543,083

2,348,802

2,194,281

Solapur

4,315,527

2,233,778

2,081,749

Jalgaon

4,224,442

2,197,835

2,026,607

Kolhapur

3,874,015

1,983,274

1,890,741

Aurangabad

3,695,928

1,928,156

1,767,772

Nanded

3,356,566

1,732,567

1,623,999

Mumbai City

3,145,966

1,711,650

1,434,316

Satara

3,003,922

1,512,524

1,491,398

Amravati

2,887,826

1,482,845

1,404,981

Sangli

2,820,575

1,435,972

1,384,603

Yavatmal

2,775,457

1,425,593

1,349,864

Raigarh

2,635,394

1,348,089

1,287,305

Buldana

2,588,039

1,342,152

1,245,887

Bid

2,585,962

1,352,468

1,233,494

Latur

2,455,543

1,276,262

1,179,281

Chandrapur

2,194,262

1,120,316

1,073,946

Dhule

2,048,781

1,055,669

993,112

Jalna

1,958,483

1,015,116

943,367

Parbhani

1,835,982

946,185

889,797

Akola

1,818,617

936,226

882,391

Osmanabad

1,660,311

864,674

795,637

Nandurbar

1,646,177

834,866

811,311

Ratnagiri

1,612,672

759,703

852,969

Gondiya

1,322,331

662,524

659,807

Wardha

1,296,157

665,925

630,232

Bhandara

1,198,810

604,371

594,439

Washim

1,196,714

621,228

575,486

Hingoli

1,178,973

609,386

569,587

Gadchiroli

1,071,795

542,813

528,982

All India pattern of consumption in 2006-07: (Ref. annexure no.lII) Out of every rupee spent in 2006-07 by the average urban Indian on consumption, 39 paise were spent on food. Of this, 9 paisa was spent on cereals and cereal substitutes, 7 paisa on milk and milk products, 6 paise on beverages, refreshments and processed food, and 4 paise on vegetables. There was little difference between rural and urban households in the share of the budget allocated to fuel and light (10% for rural, 9% for urban) and clothing, including bedding and footwear (7% for rural, 6% for urban).

The average urban Indian differed noticeably from the rural mainly by spending only 9 paise out of one rupee on cereals, but as much as 14 paise on consumer services, 7 paise on education and 5 paise on rent. In fact the urban Indian devoted only 39 paise of the rupee on food, spending a smaller portion of the rupee than the rural Indian on every food group except the category "beverages, refreshments and processed food". Percentage of population below specific MPCE: (Ref. annexure no.lll & VI) In 2006-07, roughly one-half (50.3%) of the rural population of India had MPCE less than RS.580 (column 2 of Table P1) compared to only 17.4% of the urban population column 6). For urban India, the median level of MPCE was Rs.990. Average MPCE on groups of items of consumption: (Ref. annexure no.IV)

For urban area applicable to Group shall be applicable to Maharashtra. Average MPCE for urban area applicable to Maharashtra may be considered as 1944.88 for food and non-food group of expenditure .

DEMAND FORECASTING Demand forecast was done using casual method of forecasting. As the project involves products of direct consumption, Consumption Level Method suits best to forecast demand of the products Estimate based on income and price elasticity of demand: (Ref. annexure no. I & IV) Aggregate demand can be worked out from secondary information available with us (ref. Annexure) a) Total population as per 2001 census b) Projected population for the Year 2011 : 96,878,627 for Maharashtra : 112,372,972 for Maharashtra

c) Rise in level of disposable income Per capita income in the year-2000-01 =Rs. 49693 Per capita income in the year-2004-05 =Rs. 58184 Rise in level of disposable income =17% d) Supply of primary articles of consumption in the year-2001 =156.9 (All India fig.) In the year-2005 =170.1

Rise in level of supply i.e. (+) 8.40% in the year-1992 =5.80kg In the year-2005 =7.20kg Rise in level of supply i.e. (+) 24.13% in the year-1992 =13.50kg In the year-2005 =16.30kg Rise in level of supply i.e. (+) 20.74% in the year-1992 =24.50metre In the year-2005 =31.40metre Rise in level of supply i.e. (+) 28.16% in the year-1992 =709.00gm In the year-2005 =690.00gm Fall in level of supply i.e. (-) 2.67% I) MPCE for urban area (all India) in the year-1987 =139.73

In the year-2007 =517.25 Change in MPCE = 2.7times Conclusion: (Ref. annexure no.lI) 1) 2) 3) 4) From above study, we can project- Aggregate demand =. (+) 2.60% From above study, we can project- Rise in level of income = (+) 17.00% From above study, we can project- Rise in Aggregate supply (avg.) = (+) 15.75% From above study, we can project- Rise in MPCE = (+) 2.70 times

Hence, we project sufficient demand exists that needs to be fulfilled.

TECHNICAL ANALYSIS

DETAILS OF FACILITIES: The proposed shopping mall may have outlets as detailed below - Departmental Store

- Fashion and Shoes

- Health and Beauty

- Food

- Sports and outdoor

- Electrical and phones

- Jewellerys

- Gifts and Music

- Children

- Miscellaneous Arrangements for process &technical knowhow: The project work may be taken up on E.P.C Contract basis in a time bound manner. Technical collaboration may be made for commissioning and training of personnel. Various systems such as crowd control, display and information

systems, for shops parking areas, lounge; passages are to be provided.

 Plants and Machineries for processing, material packaging, labeling, is required. Sound arrangements for Power back up, air-conditioning, Escalators, capsule lifts, waste disposal etc required to be planned complying all the regulations. Capacity strategy: The only limiting factor from aggregate demand point of view discussed in the last chapter is population growth rate. This is lesser than other Indian states; hence, we should adopt 'CHASING' strategy. The projected demand and existing demand to be diverted may take longer time span. Location of Site: The project site is located in the industrial capital city of Aurangabad. The proposed site is situated in the Nirala bazaar area behind central bus stand and hence a very convenient and crowd pulling location. Proximity to markets geographically, the place is centrally located between the two districts of the state. The city is being an important cultural, political and economic centre attracts sizeable population from all over the state and huge flow of domestic and worldwide tourist ready to spend. Proximity to Raw material sources: The neighboring places like paithan , nashik offers cheap sources of commodities agriculture produce and dairy products. Supply of beverages is locally available and further can be strengthened through tie up with local producers. Supply of Consumer durables Garments and textile products can be directly arranged through supply agreements with the manufacturers. Industrial infrastructure: Maharashtra has one of the best infrastructures in place. Uninterrupted power supply at reasonable tariff, advanced telecommunication facilities, Road network with better quality riding surface, Convenient Railway network, proximity to various big cities. Urban infrastructure: Apart from industrial infrastructure, proper urban facilities are available such as housing schooling hospitals, banks etc.

 Labour situation & Availability: The city boasts better quality and educated labour force suitable for trading activities. The level of labour union activism is low due to migration, heterogeneous mix of labour force from different geography etc. Govt. policies: As per data published by RBI, FDI Equity inflows (from April 2000 to September 2008) in Maharashtra are RS.1 047crore, which is 0.33% of total FDI inflows in India and ranks ninth in attracting investment. This is quite significant considering size of the state and economy. Climatic condition: Except two months of active heavy monsoon, climate is moderate and hardly disrupts economic activities taking place. It does not pose any significant challenge to our proposed business.

Proposed Site The site is completely developed by the CIDCO Maharashtra. The site is a leveled plot with flat topography. It is located near the city entry point and emerging fast as a central business zone. The place has become popular and very convenient to the people all over Maharashtra due to location near the main bus stand. Many of the business activities are concentrated in this area due to its suitability. A foundation stratum is black cotton soil The work schedules shall be thoroughly prepared and correlated to activities and time estimates. Buildings and Structures Following activities required with distinct and meticulous planning of the interior and exterior. The total area required as per break up tabulated here. Sr. No. 1 2 3 Sections Departmental stores Fashion and stores Health and Beauty Built up area Requirement in( Sqmt) 3000.00 500.00 500.00

4 5 6 7 8 9 10 11 12

Food Sports and Outdoor Electrical and phones jwellery Gifts and usic Children Miscellaneous Administration and Security Processing & Packaging Health, Ventilation and air conditioning system (HVAC) Total

1500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 1000.00

13

500.00

10500.00 5000.00

14

Parking

FINANCIAL ANALYSIS COST OF PROJECT Sr. Component of Quantity in Sqmt

No. Project Land and Building 1 Land cost

Unit rate / Cost percentage of development

Cost

10000.00

5000.00/ sqmt

7,20,00,000.00

Buildings ( with area @ 2100.00 2 sqmt per floor Keeping @ 0.2 FSI permissible for future needs) Parking and 3 Landscape Development etc. Architect / Consultants 7900.00 3000.00/sqmt 3000.00/sqmt 2,37,00,000.00 10500.00 15000.00 / sqmt 7,50,00,000.00 2,37,00,000.00

@ 2% of (1,2& 3)3

34,14,000

Other Expenses Plants & 1 Machineries Plant utilities Technical Know - how fee Misc. Fixed assets Preliminary and capital issue expenses Total Pre Operative Expenses Provision for 20,51,14,000.00 As per quotation 10,00,000.00 As per quotation per quotation As 2,00,00,000.00

As per quotation

50,00,000.00

As per quotation

50,00,000.00

@2%

41,02,280.00

@3%

61,53,420.00

Contingencies Total Cost of the Project 21,53,69,700

Calculation of Revenue

Year

1910 1921

1931 1940 1950 1960 1971

1981

1991

2001

2011

Population Growth Rate Three Months Moving Average Two Months Moving Average

2.36

(3.55) 7.62

7.05

1.21

7.77

34.77 26.74 16.08 15.21

2.14

3.71

5.29

5.34

14.58 23.09 25.86 19.34

0.59

2.04

7.34

4.13

4.49

21.27 30.75 21.41 15.64

Population forecast of Year 2011

Sum of square error (three months)

= 2.142 + 3.712 + 5.292 + 5.342 + 14.582 + 25.862 = 216.83

Sum of square error (three months) +

= 0.592 + 2.042 + 7.342 + 4.132 + 4.492 + 21.272 30.752 + 21.412 = 243.99

1.

Hence, we can assume, population growth rate applicable to year 2011 i.e. 19.34% due to

lower average square error i.e. 216.83 2. Projected population in the year 2011 i.e. 50 percentage of North Maharashtra district plus

50% of south Maharashtra district, which will serve as a consumer base. ( 1,34,7668/2) x 19.34 / 100 = 2,60,638

4. Expected sales per Month ( Revenue) Here, we assume 10% of the population uses this mail mall to fulfill their needs 260638 = 26063.00 Nos. Hence = 10%

MPCE for Maharashtra = Rs. 1974.88 for

urban india in the year 2007. (Ref. group of UTs as per ANNEXURE NO.) Expected sales per month = 26063.00 nos x 1974.88/2 = sales per annum Rs.30,88,27,783.60 Calculation of Costs Assuming total cost @ 80% of expected sales per annum 2,57,35,648.72/Hence , expected

Sr. No. 1 2 3 4 5 6 7 8 9

Item Description Total Material cost @ 60% Total utilities cost @ 5% Total Labour cost @ 10% Total Overheads @5% Total service cost @ 5% Total Administrative cost @ 5% Total Sales Expenses @ 5% Total Royalty payable @55 Gross Total

Estimated Amount 14,82,37,336.00 1,23,53,111.00 2,47,06,222.00 1,23,53,111.00 1,23,53,111.00 1,23,53,111.00 1,23,53,111.00 1,23,53.111.00 24,70,62,227.00

Financial Structure Mode of Finance Percentage Amount Rs. In Cr.

Equity Term Loan Total

@ 50% @ 50% 100%

10.78 10.77 21.55

Operating Cost with Yearly Breakup Cost of the project Rs. 21,53,69,700.00. Period of completion of Project- 2 Year.

For the year ending December 2011 Opening Balance Rs. 30,88,27,784.60 + 11,23,225.00 Add Cash Interest earned @ 9.5% on Rs. 11,23,225 Less Cash for Purchase of material, wages and other expenses Cash Release of security deposit ( defect liability ) @ 15% of Rs 21,53,69,700.00 Cash for repayment of loan @ 11% and 05 years term Closing Balance Rs. 3,62,,91,046.00 Rs. (56,01,013) Rs. 3,23,05,455.00 Rs. 24,70,62,227.00 Rs. 1,06,706.00 Rs. 30,99,51,009.00

For the year ending December 2012 Opening Balance Rs. ( 56,01,013) + Rs. 30,88,27,784.60 AddRs. 30,32,26,771.00

Cash Interest earned LessCash for purchase of material, wages and other expenses Cash- for repayment of loan @ 11% and 05 years term Closing Balance

NIL

Rs.24,70,62,227.00

Rs. 3,62,91,046.00

Rs. 1,98,73,498.00

For the year ending December 2013 Opening balance Rs. 1,98,73,498.00 +Rs. 30,88,27,784.60 AddCash Interest earned @9.5% on Rs. 19873498.00 LessCash for purchase of material, wages and other Expenses Cash for repayment of loan @ 11% and 05 years term Closing Balance Rs. 4,72,35,991.00 Rs.3,62,91,046.00 Rs. 24,70,62,227.00 Rs. 18,87,982.00 Rs. 32,87,01,282.00

EVALUATION OF FINANCIAL VIABILITY Pay Back Method Payback period = cash investment / cash returned per year For Cash, investment of rs. 10,76,84,850.00 per annum Cash returned in 2012 is Rs. 1,98,73,498.00 Cash returned in 2012 is Rs. 4,72,35,991.00

Cash to be returned at the end of 5th year

= 10,76,84,850.00 1,98,73,498.00 4,72,35,991.00 = 4,05,75,361.00

Assuming earnings remain same in the sixth year, period required to recover above amount Rs. ( 4,05,75,361.00 / 4,72,35,991.00)/12 = 10.3 , Say 3 Months

Hence, Payback period for the project is 05 years and 10 Months

Net Present Value Method NPV = [ CF1 / (1+K) ] + [ CF2 / ( 1+K) ] + [CF3 / ( 1+K) ]+up to CF5 INVEST

Here, PV1 = Rs. 12,33,08,800.50 / ( 1+ 0.11) PV2 = Rs. 11,23,225.00 / ( 1+ 0.11)2 PV3 = Rs. (56,01,013) / ( 1+ 0.11)3 PV4 = Rs. 1,98,73,498.00 / ( 1+ 0.11) PV5 = Rs. 4,72,35,991.00 / (1+0.11) Sum of PVs

= 11,10,89,009.50 = 9,11,634.00 = (40,95,42.43) = 1,30,91,288.70 = 2,80,32,261.59 = 14,90,28,782.00

Hence NPV = 14,90,28,782.00 Rs. 10,76,84,850.00

= Rs. 4,13,43,931.96

As the value of NPV is Positive, investment is advisable for the project.

References: 1. Project financing in corporate sector by C.G. Karandikar / G.M Dave

2. Construction Finance management ( NCP 29 ) by NICMAR 3. Project formulation and Appraisal ( PGPM 21) By NICMAR

4. Website: http:/indiabudget.nic.in

5. Website: Census of india 6. NSS 63rd Round ( July 2006 June 2007)