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    Appraisal Criteria

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    Shilpi Bansal
    This document discusses project appraisal and project management. It covers key aspects of project appraisal including its importance, difficulties, and categories of project sponsors. It also discusses important contracts used in project finance deals. The document outlines the typical project life cycle phases and how uncertainty impacts feasibility estimates over the life cycle. It describes how discounted cash flow valuation and net present value are commonly used to evaluate projects, and also discusses how flexibility can be valued for certain types of projects like R&D.

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    Appraisal Criteria

    Uploaded by

    Shilpi Bansal
    92 views6 pages
    This document discusses project appraisal and project management. It covers key aspects of project appraisal including its importance, difficulties, and categories of project sponsors. It also discusses important contracts used in project finance deals. The document outlines the typical project life cycle phases and how uncertainty impacts feasibility estimates over the life cycle. It describes how discounted cash flow valuation and net present value are commonly used to evaluate projects, and also discusses how flexibility can be valued for certain types of projects like R&D.

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    This document discusses project appraisal and project management. It covers key aspects of project appraisal including its importance, difficulties, and categories of project sponsors. It also discusses important contracts used in project finance deals. The document outlines the typical project life cycle phases and how uncertainty impacts feasibility estimates over the life cycle. It describes how discounted cash flow valuation and net present value are commonly used to evaluate projects, and also discusses how flexibility can be valued for certain types of projects like R&D.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    92 views6 pages

    Appraisal Criteria

    Uploaded by

    Shilpi Bansal
    This document discusses project appraisal and project management. It covers key aspects of project appraisal including its importance, difficulties, and categories of project sponsors. It also discusses important contracts used in project finance deals. The document outlines the typical project life cycle phases and how uncertainty impacts feasibility estimates over the life cycle. It describes how discounted cash flow valuation and net present value are commonly used to evaluate projects, and also discusses how flexibility can be valued for certain types of projects like R&D.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    MBA-III SEM

    Manav Rachna College of Engg.


    Project management and
    Infrastructure Finance
    Project Appraisal
     A process of analyzing the technical feasibility and economic
    viability of a project proposal with a view to financing their costs.

     Importance of project appraisal


    – It is a capital investment decision
    – It has long term effects
    – Decision once taken is irreversible
    – Expenditures are high

     Difficulties in respect of project appraisal


    – Measurement of costs and potential benefits are difficult
    – High degree of uncertainty
    – Long term spread – time value of money
    Contd….
     Categories of project sponsors
    ○ Industrial sponsors
    ○ Public sponsors with social welfare goals
    ○ Contractor/sponsors who develop , build and run the plant
    ○ Pure financial investor

     Key contracts used in project finance deals


    ○ Turnkey construction contract
    ○ Operations and maintenance contract
    ○ Purchasers and sales agreement
    ○ Suppliers and raw material supplies agreement
    Project Life Cycle
     Conception and selection phase
    ○ Planning and scheduling phase
    ○ Implementation, monitoring and control phase
    ○ Evaluation and termination phase
     – Life cycle impact on feasibility Impact on feasibility
    ○ Uncertainty regarding cost and time estimates in respect of later
    stages
    ○ Estimates need to be adjusted and revised periodically
    depending on the lessons leant in the earlier cycles.
    ○ Typically the focus of project managers is initially on
    performance, and then shifts to costs and finally meeting the
    deadline. But focus should be on performance fro the beginning
    Project Valuation
     In general, each project's value will be estimated using a
    discounted cash flow (DCF) valuation, and the opportunity with
    the highest value, as measured by the resultant net present
    value (NPV) will be selected (applied to Corporate Finance by

    Manav Rachna College of Engg.


    Joel Dean in 1951; see also Fisher separation theorem, John
    Burr Williams: theory).
     This requires estimating the size and timing of all of the
    incremental cash flows resulting from the project. Such future
    cash flows are then discounted to determine their Present
    Value.
     These Present Values are then summed, and this sum net of
    the Initial Investment Outlay is the NPV
    Valuing Flexibility
     In many cases, for example R&D projects, a project may open (or
    close) paths of action to the company, but this reality will not
    typically be captured in a strict NPV approach.
     Management will therefore (sometimes) employ tools which place
    an explicit value on these options. So, whereas in a DCF valuation
    the most likely or average or scenario specific cash flows are
    discounted, here the “flexibile and staged nature” of the
    investment ismo d elled, and hence "all" potentialpayo ffs are
    considered.
     The difference between the two valuations is the "value of
    flexibility" inherent in the project.

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