Analyzing and evaluating the results of the investment project for an phat steel structure factory

The construction project requires big capital investment, long payback, sothe analysis and evaluation of its socio-economic effects must be very meticulous,careful and accurate new, brin

INTERNATIONAL EXECUTIVE MASTER OF BUSINESS ADMINISTRATION PROGRAM

NGUYEN QUANG HAI

ANALYZING AND EVALUATING THE RESULTS OF THE INVESTMENT PROJECT FOR AN PHAT STEEL STRUCTURE

FACTORY

CERTIFICATION MAKE SELECTION COMPANY PROJECT GRADUATION THESIS

Office Address: No 1 Cu Loc street, Thuong Dinh Ward, Thanh Xuan District,

in graduate thesis entitled, “ Analyzing and evaluating the results of the

investment project for An Phat Steel Structure Factory”.

An Phat Group Joint Stock Company confirm all data used in the analysis of his thesisNguyen Quang Hai is completely authentic and accurate Management company alsohighlights the practical value of this research

AN PHAT GROUP JOINT STOCK COMPANY.

-DEPUTY DIRECTOR GENERAL :

To complete the high school program and writing this thesis, I have received the

guidance, help and suggestions Your enthusiastic teacher Thai Nguyen University ThaiNguyen city

First of all, I would like to send my deep gratitude to Dr Tran Van Binh, the Institute

of Economic Management - University of Technology, Hanoi has spent a lot of time anddiligence study guide and help me complete thesis

Sincerely thank would like to thank the teachers, the teachers University of

Management Paris France (PGSM), Thai Nguyen University, the training of the company organized a science and to teach and communicate knowledge is very precious andvery practical in 12 subjects of the program, have created the conditions for me to studyand complete the course

At the same time, I also thank you brother, sister and leadership An Phat Group JointStock Company, the Department of Planning and investment, department of of VinhPhuc tax facilitate our survey to essay writing data

Sincere thanks members in Grades IeMBA.b01, the most enthusiastic comments when Italk and help me in the learning process and completion of this thesis

Although I have tried to complete the thesis with all his enthusiasm and energy, but theinevitable shortcomings, look forward to the valuable contribution of you and teachers

Ha Noi, November 2012.

-Student : Nguyen Quang Hai

TABLE CONTENTS Page FOREWORDS

1 Title: Analyzing and evaluating the results of the investment project for An

Phat Steel Structure Factory 1

2 Rationale: 1

3 Aims 2

4 Research methodology 2

5 Research data 2

6 Organization 2

7 Conclusion 3

CHAPTER I 4

1.1 The general concept of investment projects 4

1.1.1 The concept of investment projects 4

1.1.2 Classification of investment projects 4

1.1.3 The periods of investment project 6

1.2 Content of feasibility studies 10

1.2.1 Feasibility study 10

1.2.2 The purpose of the feasibility study 10

1.2.3 Main contents of the feasibility study: 11

1.3 Finance and Economic analysis of investment projects 14

1.3.1 Investment identification 14

1.3.2 Estimating annual turnover of project 16

1.3.3 Estimating the annual cost of the project 17

1.3.4 Tabulate the basic parameters of the project 18

1.3.5 Preparation of expected financial reports 18

1.3.6 Evaluation of the project 24

1.4 Sensitivity Analysis 31

CHAPTER II 33

2.1 The need for the construction of structural steel plant in the area 33

2.2 Introduction about the investor 33

2.3 Pursuant to the implementation of the project 34

2.4 Description of the investment project 35

2.4.1 Design capacity 35

2.4 1.1.Installed Capacity 35

2.4 1.2.Features 35

2.4.2 Technology 36

2.4.3 Location, area and scale construction 37

2.4.4 Equipment List 39

2.4.5 Construction Category 41

2.4.6 The total project construction and installation of equipment 44

2.5 The organizational model of production 45

2.5.1 The organizational model business 45

2.5.2 Forecast of labor 47

2.5.3 Expected production plan 48

2.5 4.1.Cost estimates for the first five years: 50

2.5 4.2.Estimation of production costs: 51

CHAPTER III 52

3.1 The production plan and projected revenues, production costs 52

3.2 Plan to raise capital for the project 60

3.3 Plan of the interest payments and loan 62

3.4 Establishment of the project's cash flow table 64

3.5 Calculate indicators NPV, IRR, payback period of the project 66

3.6 Sensitivity analysis with the assumption 68

3.6.1 Costs raise by 5% 68

3.6.2 Revenue decreased by 5% 70

3.7 Conclusions on the feasibility of the project 73

3.8 Conclusions and recommendations 74

LIST OF TABLES Page

Table 1: Regional climate project 38

Table 2: List of equipment 39

Table 3: The estimated capital construction work items 43

Table 4: Estimates of investment and construction equipment 44

Table 5: Structure of the apparatus and the number of employees 47

Table 6: The first 5-year cost estimate 50

Table 7: estimates of production costs 51

Table 8: Estimated revenue: 53

Table 9: Revenue for the first 15 years of operation from the corresponding with operation of the plant: (unit: Million VND) 53

Table 10: Cost of the average wage the first five years of production 54

Table 11: Depreciation of items in 15 years 55

Table 12: Cost of production for 15 years 57

Table 13: Fixed capital investment 60

Table 14: Mobile capital 60

Table 15: General investment 62

Table 16: Capital structure 62

Table 17: Interest payment plans and loans bank (unit: MillionVND) 63

Table 18: Cash flow of project (Unit: Million VND) 64

Table 19: The break-even point of the project 67

Table 20: Sensitivity analysis of the cost increasing by 5% (unit: Million VND) 68

Table 21: Sensitivity of the project while revenue fell 10% (Unit: MillionVND) 70

EBT: Earnings before tax

EBIT: Earnings before interest and taxes payable

NPV - Net Present Value: the net present value index

Bi - Benefit: The benefits of the project

Ci - Cost The cost of the project

r: discount rate

AV - Annual Value: Annual Target current value

B / C - Benefit / Cost: The ratio of benefit / cost

IRR - Internal Rate of Returns: the internal rate of return

KH: Depreciation and amortization

The decision to invest or not depends on other factors The first factor iseconomic policy, on the basis of the law and the state economic policy to create fairplaying field for all businesses The second is the competitive market factors, tosurvive and develop, products and services of the business have to meet needs of themarket The third is the financial cost factors, changes in interest rates and taxpolicies affect capital structure and the capital of the enterprise Another factor thathas a big impact is the fourth element of scientific and technical progress Thisfactor will affect the choice of equipment, depreciation of fixed assets, etc The fifthfactor is the analysis of the project, assessment of the feasibility of the project Thisone is seen as the most important, having Crucial influence on investment decisions.Currently our country is in the process of industrialization andmodernization The investment projects to build factories, industrial parks, exportprocessing zones, etc is important because it produces local products to boost thedomestic economy, reduces imports and create jobs for employees in thelocality The construction project requires big capital investment, long payback, sothe analysis and evaluation of its socio-economic effects must be very meticulous,careful and accurate new, bringing high performance for the investment.

An Phat Group Joint Stock Company, is a corporation doing business inmultiple industries: industrial and civil construction, import and export, medicalequipment, education, mining and mineral processing… to develop the field of

construction of industrial buildings, prefabricated steel building business in theNorth, focusing mainly on the key provinces of the North West economy zone.Recognizing the importance of the analysis and evaluation of the effectiveness ofinvestment projects for enterprises with the knowledge learned in the MBA program

and research results in business the author chose the subject “Analyzing and

evaluating the results of the investment project for An Phat Steel Structure Factory” as his thesis.

3 Aims

In this thesis, I apply the theory learned in the MBA program, the researchmaterial to analyze, evaluate, study the factors related to the effectiveness of theproject and propose solutions guaranting for investment projects with efficiency,limiting risk to the business, bringing significant profits and achieving theirbusiness goals, contributing to improve the position of enterprises in the sector

4 Research methodology

To complete this thesis, the author uses the methods learned in MBAprogram such as statistics, market analysis, gathering data, processing data andusing data of consulting services in the technical stage Since then draw theconclusions on the basis processes: information collection - information processing

- forecasts of future market prices - solutions offer to find the optimal solution - theconclusion

5 Research data

The data learned in MBA program will be used, especially on course ofProject Management, Corporate Finance, and Strategic Management Besides, realfigures from a number of projects in domestic and foreign plants and data sourcesfrom other specialized agencies are used as well There is also the data looked upfrom Internet network under verification

6 Organization

Besides the forewords, conclusions and references, the structure of the thesis

consists of three chapters:

Chapter I: Theoretical background

Chapter II: Introduction of investment project for An Phat Steel StructureFactory

Chapter III: The economic and financial analysis of investment projectsDue to time constraints, though getting the dedicated guidance of the Instructorand the efforts of the author, the thesis can not avoid the shortcomings Hoping thatthe author could receive feedback from your teacher, and experts all friends

7 Conclusion

Research is a real investment project of An Phat Group Joint StockCompany During study procedure, it will point out what is the key leading toeffective project, what is the key leading to poor or ineffective projects, so that theinvestors have an additional perspective on the future of the project We lookforward to the contribution of the faculty of the program and especially AssociatedProfessor Doctor Tran Van Binh

CHAPTER I THEORETICAL BACKGROUND

1.1 The general concept of investment projects

1.1.1 The concept of investment projects

Investment activities (or “investment”) is the process of using the financialresources, labor, natural resources and other physical assets in order to directly orindirectly reproduce simply and reproduce extensively of production material andtechnical base of the economy in general, of the Postage and Telecommunications(MPT) in particular Starting from the effective range of the investment results,there may be different interpretations of investment

Investment in a broad sense is the sacrifice of present resources to carry outcertain activities in order to return to investors expected results in the future which

is greater than the resources spent to achieve those results Resources can be money,natural resources, labor and wisdom The results could be the increase of financialassets, physical assets, intellectual property and resources

Investment in the narrow sense includes only activities to use existingresources in order to bring the socio-economic outcomes in the future which isgreater than the resources used to achieve these results

Thus, investment is active use of financial resources, material resources,labor and intellectual resources in manufacture for a relatively long time to gaineconomic benefits

1.1.2 Classification of investment projects

Classification according to the investment management function

 Direct investment: the investment method in which the investor directlyinvolve in managing capital spent In direct investment, investor and themanager of capital and is considered a subject Direct investment can be

domestic investment or foreign investment in Vietnam Investors are fullyresponsible for investment results.

 Indirect investment: is a method in which investors are not directlyinvolved in managing capital spent In indirect investment, the investor andmanager of capital is not a subject This type of investment is also known asfinancial investments such as shares, securities, bonds, etc

 Loans: This is a form of loan as profit through interest on loans

Classification by capital source:

Vietnam's business organizations, Vietnamese citizens, the Vietnamesepeople residing abroad, foreigners permanently residing in Vietnam.Domestic investment is subject to the Law of Domestic Investment

(or “foreign investment” for short) happens when the foreign investors givecapital into Vietnam in cash or any other assets to carry out investmentactivities in accordance with the Law on Foreign Investment in Vietnam

 Foreign investment: this is the kind of investment of one country'sinstitutions or individuals into others

Classification according to investment properties:

construction of buildings, factories, established companies, opening newstores, new services New investment is not on the basis of existing oneswhich is growing up This type of investment requires a lot of capital, hightechnology and management; time of investment and the time required forrecovery operations is long, and it is high risk

 Intensive investment: this is the kind of investment to restore, renovate,upgrade, refurbish, synchronize, modernize and expand of existing objects It

is the method in which the investors directly involve in the management ofcapital spent, it requires less capital, and time of recovery is fast

Classified according to time use:

Classified by sector of activity:

Classified according to the nature of using capital:

capital is given out in order to increase property values This is thefundamental mode to open extensive reproduction

 Shifting investment: direct investment method, in which the capital isgiven in order to transfer ownership of assets (stock, bonds, etc.)

Classification according to majors:

 Investment in infrastructure development: the investment to build thetechnical infrastructure (transport, electricity, water, etc.) and socialinfrastructure (schools, hospitals, cultural information base centre)

 Investment in industrial development: to build the industrial constructions

 Investment in service development: to build the service works

1.1.3 The periods of investment project

Scheme of cycle to carry out investment project

Brainstor

-ming

(ideas)

Prepar ation

Action Handling

the results

New ideas

* Preparation: This stage creates the premise and decides the success of the

two later stages, especially of the result operational phase.To properly prepare theinvestment will set the stage for the effective use of capital With investment intoplant construction project, in this stage, capital usually takes about 0.2-0.3% of thetotal funds invested and about 6 months, accounting for 25% of the investmentprocess

The main content of this phase include:

- Identifying the needs of the market:

+ Current demand, future

+ Trend of demand

+ Product lifecycle

- Detecting chance: opportunities can come

+ by chance,

+ from the assigned tasks

+ from partners, friends introduction or cooperation

+ from consulting services

+ But the most importance is from the process of self-study of the enterprises

on the basis of their own resources

- Selecting chance

- Gathering information and data

+ about the macro and micro-environment,

+ about the sector environment

+ Internal information

- Balancing the power, resources, or forming from the link itself to orientinvestment

+ Financial resources, personnel

+ The superior resources

+ Resources formed from the link

- Establishing investment projects

+ Preparation of investment projects, financial calculations

Formation of project management

- Establishing project management organization, assigning tasks

- Planning project

Conclusion: In this phase, the quality problems, the accuracy of the data is the most

important so that people can decide the scale of investment, suitable locations,appropriate technology

Stage of carrying out investment: investment capital of the project was spent at

most about 65-75% of the total capital of the project but not yet profitable Thelonger the investment period (about 60% of the time project) is, the moreaccumulation of capital is, the greater losses But the time of investing depends onthe quality of investment preparation, management process

The main stages are:

- Perfecting, supplementing, adjusting the project plan

- Organizing to design-create the construction and technology estimates+ Designing, estimating the construction

+ Designing, drafting the technology

+ Making the total cost estimates

+ Acquiring the investment agreements, construction permits

- Procurement organizations

+ Planning for bidding

+ Preparing bidding documents

+ Offering bid – marking bid

+ Negotiating and signing contracts with suppliers

+ Subscribing to supply contracts

+ Disbursing

+ Examining the stages

+ Trial running

Conclusion: In this phase, time is the most important issues, in parallel with a

reasonable cost, good product quality

* Operation phase of investment results: Operation phase is to achieve the

purposes of the project If the results produced by the investment phase ensure theuniformity, low cost, right schedule , the objectives of the project only depend onissues of technology transfer and management ability Duration of this stage isabout 15% of the total time of the project, the amount of capital to use is about 0.2%

of the total capital of the project

The main stages are:

+ Completing the operating procedures

+ Training for operate

+ Increasing capacity up to approximate designed capacity

+ Calibrating errors

+ Operating with the maximum planning assumption

+ Calibrating

- Technology transfer

+ Issueing the operating procedures

+ Completing the training, use

+ Partial technology transfer

+ Overall technology transfer

+ Commissioning put into operation, handing over to the customers

Conclusion: In this phase, the correction of discrepancies and mastering

technology are the most important, it determines the quality and efficiency ofinvestment projects

1.2 Content of feasibility studies

1.2.1 Feasibility study

Feasibility Study is the last screening step to select the optimal project In

this stage, it is obligatory to confirm whether the investment opportunity is viable ornot, solid and effective or not? In this study step, the research content is similar tothe pre-feasibility study phase, but differs in the level of detail and accuracy Allaspects of the study are considered in the active state, which means we have totaking into account the uncertainties which can occur in each content of thestudy We should consider the firmness of the project under the impact of theuncertainties, or consider the impact to ensure effectiveness of project

1.2.2 The purpose of the feasibility study

The purpose of the feasibility study: The feasibility study was conducted in

three phases Stage researches the investment opportunities in order to removeunclear plan without going into details The feature of unfeasibility is demonstrated

by the statistics, the easy-to-find economic information It helps to save time andcost of the next research

The purpose of the feasibility study is considering the last time to reach accurateconclusions about all the basics of the project by the data, techno-economic projectsspecifications, schedules and project progress which have been carefully anddetailed calculated before formal investment decision

Thus, the feasibility study is one of the tools to implement the economicplans of the industry, local and nation, to turn plans into concrete action, brigingeconomic and social benefits to country and financial benefits to investors.

1.2.3 Main contents of the feasibility study:

Considering the general economic situation relating to investment projects:

The general economic situation can be considered the basis of the investmentproject It represents the investment landscape which has a direct impact on theprocess of economic development and financial efficiency of investment Thegeneral economic situation mentioned in the project includes the following aspects:+ The natural geographical conditions (topography, climate, geology, etc.) relating

to the selection, implementation and com into effect of project later

+ Conditions of population and labor relating to the demand and consumptiontrends, to labor supply for the project

+ Political situation, policies and laws that affect the concern of investors

+ Socio-economic development situation of the country, of the local; the businessdevelopment of the branch, of the base (growth rate of GDP, investment-to-GDPratio, the relationship between savings and consumption, GDP per capita, rate ofreturn business, etc.) affecting the implementation process and the efficiency of theproject

+ The situation of foreign exchange (foreign exchange balance, foreign reserves,debt and debt payment situation .), especially projects that have to import rawmaterials and equipment

+ Economic systems and policies include: System structure by Sector, bypossession relation, by region to assess the level and comparative advantage of theinvestment project The development policy, economic reforms and restructuringassess the level of awareness, innovative thinking and an advantageous environmentfor investment

+ Status of national economic planning by period, by level of detail, by theobjectives, priorities, impacting tools from which to see the difficulties and

advantages, priority that the project will be responded to, the limitations which theproject must comply.

+ The situation of foreign trade and other relevant institutions such as the importand export, import and export taxes, exchange rate policy, the investment rules forforeigners, the balance of trade, balance of international payments These issuesare particularly important for projects producing goods for export and import of rawmaterials and machinery For example, the exchange rate policy is not appropriate(the exchange rate of domestic currency is lower than of foreign currencies) willcause more and more losses in export; export taxes are too high will causedifficulties in competing with goods of countries in the overseas market, the ruleshave the effect of encouraging investment and attracting foreign investment The facts and data to study the general economic situation of the above projects can

be collected easily in almanacs, statistical reports, magazines, books andinternational economy materials

However, small projects do not need such many macro-economic data With largeprojects, it depends on the objectives, characteristics and scope of projects to selectamong the general economic issues above to consider

For all levels of project evaluation, macro-economic issues are considerednot only in the perspective of its impact on the project, but the project's impact onthe economy at the macro perspective such as socio-economic benefits, the project'simpact on the development of the economy, of the sector to economic structuralreform, economic development, foreign affairs

Market Research:

Market is the decisive factor in the selection of targets and the scale of theproject Even in the case the project has signed the underwriting contract, marketalso needs researching where the underwriting people sell their products andreputation on the consumption market

Purposes of market research: in order to determine:

+ The market supply of products or services of the current project, thedevelopment potential of this market in the future, the economic and non-economicfactors affect the demand for product or service

+ The necessary promotional and marketing measures to be able to boost thesale of products of the project (including pricing policies, organization, distribution,packaging, decoration, advertising )

+ The competitiveness of the product comparing to similar productsavailable and products which may be released later

Content of market research:

- For the domestic market:

+ Current and future demand for products of the project Who are the maincustomers? Who are the new customers?

+ How current demand is met? (How many percent is locally produced and that ofother locations in the country, how many from import, imported from which region

in the world?);

+ Estimating increase annual demand from foreign countries for the products;+ Estimating price and quality of the product, expected design, packaging to beable to compete with other production facilities in and outside the country, inpresent and future In cases we have to compete with imports, which support of thestate the company needs? Costs required for this competition?

- For the export market:

+ The ability to compete in the export market in terms of price, style, and qualitydepends on the supply of materials, financial capacity, technology and management.+ The ability to expand export markets (in which sector, how much annualvolume? What should be done to expand the export market?)

+ Regulation of export market of packaging, quality and hygiene

+ Wording consumption: how long? Consumption, prices?

+ Expected market to replace when needed

+ Which governmental support is needed to be able to export?

Consumption problem:

+ The shops for product marketing and distribution

+ Expenses for marketing and distribution of products

+ To whom product is expected to sell? (through trade system, directly sell, throughagents, etc.)

+ Method of payment: bank transfer, in cash;

Issue of competition:

- Considering the domestic main competitive company now and in the future,the situation and prospects of the operation of these facilities, comparablebenefits of the product produced by the project (cost of production, the type ofdesign, quality, etc.)

- Consider the ability to win in the competition with imports, necessaryconditions?

1.3 Finance and Economic analysis of investment projects

1.3.1 Investment identification

* Investment identification needs doing each year and the entire project on the basis

of the progress of the plan proposed investment Of the total investment, it isnecessary to separate groups:

- According to sources of capital: equity capital, loans (short-term, medium-termand long-term interest rate for each source)

- The forms of capital: (Vietnam, foreign currency), in kind, with other assets.The total investment capital of the project should be considered at each stage of theinvestment process and is determined by the Vietnamese currency, by foreigncurrency, or by other assets The total investment of the project includes the entireamount of capital needed to set up and put the project into operation Total capital issplit into two categories: fixed capital and mobile capital

- Fixed capital is the preparation expenses and the initial cost of investments infixed assets These expenses are allocated to cost of products by annualamortization

+ Preparation expenses are expenses arising before the operation of project Itincludes: establishment expense, costs for project researches, documenting,browsing, initial managing (meetings, formalities,etc.), supply arrangementrelations, marketing .It is difficult to calculate accurately this expens, so mostly,

we do not miss the detailed item and the budget for that item These costs need to beunanimously agreed upon by the parties to invest

+ Initial cost of investment in fixed assets includes the original cost of land, cost ofequipment, means of transport, cost of technology transfer…They need to becertified by the authority agency and in accordance with the regulations of theMinistry of Finance

- Mobile capital is the amount needed to be spent on certain investments in anumber of items to make it convenient for the business of the project Mobilecapital needs identifying for each year and for each specific component Mobilecapital of the project is usually determined by the formula:

Mobile capital = CB + AR - AP + AI

Table of Mobile capital savings

Total (1 + 2 – 3 + 4)

* Identifying funding sources for the project, the ability to secure capital from eachsource in terms of quantity and schedule

Capital structure table

Items

Capitalexpense(interests

1.3.2 Estimating annual turnover of project

Annual turnover estimation of the project is to help estimate the partialresults of the project activities, being an important premise to predict the benefit,determine input cash flow and scale of the project in the future Project revenuemainly from sales volume of products or services that projects create and isexpected to supply the market corresponding to each period during the project lifecycle

To estimate the annual revenue of the project, it need to estimate the basicparameters of the design capacity, the annual rate of production the annualinventory, the unit price of the product as well as the change of prices in the future

Turnover = Sales volume * price of products

In which: consumption in each year is determined by the formula:

Consumption in

Manufacturingoutput in the period -

Or:

Consumption

Manufacturingoutput in theperiod

-inventorygoodsdifferences

1.3.3 Estimating the annual cost of the project

To meet the business needs of the project and create the correspondingrevenue, the project must consume certain expenses The expenses relating to theproduction and business activities of the project include the direct costs,administrative costs and cost of sales

- Direct costs: is the basis to calculate production costs and cost of goods sold, and

is the basis for determining profit and loss results of the project activities Directproduction costs include: the cost of direct materials, direct labor costs and generalproduction costs

- Management cost: Includes the cost of business management, administration and

other general expenses associating with all activities of the project such as salariesand allowances for the board of directors and project management personnel,depreciation of office equipment projects, customers, and a business managementcosts allocated to the project by the appropriate rate

- Cost of sales: Includes expenses expected to be incurred during the sale of goods

or services of the project including salaries and allowances paid to sales staff, thecost of marketing, advertising, packaging, etc Often these expenses are estimated as

a percentage appropriate revenue or cost of the project

1.3.4 Tabulate the basic parameters of the project

The systematic presentation of the basic financial parameters of the projecthelp investors and other stakeholders visualize the context of the project, identifywhat information is important to collect, review consideration during projectpreparation and appraisal, as a basis for making investment decisions accordingly

Parameters table are usually classified into five main groups: investmentcapital, sponsorship, group revenue, cost and othes so that the project analysisperson can easily find information

Basing on the basic financial parameters, investment plans and operationalplans of the project, the construction of the table financial planning is carried out toserve for the determination of the value of future cash flows of the project

The financial analysis should be carried out using Microsoft Excel software,because this software allows us to perform calculations from simple to complex Inparticular, the stuff like Goalseek, Table, Scenarios, Crystal ball will help us tounderstand deeply in the sensitivity analysis and simulation analysis In addition,Excel has retrofitted financial functions like IRR (), PV (), NPV (), PMT () allows

us to save computing time with the high degree of accuracy

1.3.5 Preparation of expected financial reports

It is necessary to tabulate the cost of production or services, revenues, profitand loss table, expected balance sheet, revenue and expenditure balance table Thefinancial statements help investors see the financial situation of the project and it isthe source of data helps to calculate the indicators reflecting the financial side of theproject

- The investment plan table: shows the total investment and capital structure Total

investment includes fixed capital, working capital and interest during construction(if any) Basing on this table, we will see the progress of capital allocation, portfolio

of assets, from which the basis for calculating the annual depreciation for theproject To calculate, we can tabulate as the following model:

Investment Plan Table

Depreciation Plan: Table plans are based on historical cost depreciation and fixed

asset's useful life.The cost of fixed assets is determined basing on the value that wehave identified in the investment plan table Asset's useful time is usuallydetermined by the tax conditions For investment projects in Vietnam, to determinetheir usefulness for depreciation of fixed assets basing on the legal time frameamortization in accordance with current regulations of the Ministry of Finance

Amortization Plan Table

The rest value

For investment projects with a variety of assets with different useful lives,each of fixed assets should make a plan of amortization separately, then aggregate

into one general plan depreciation table for the types of assets Basing on thisdepreciation plan, we will know the annual depreciation and at the end of theproject, the rest which is not depreciated value of the property.

- Repayment plan: For investment projects, financial cashflow refers only to loans

and debt and ignore the mobilized capital stock and paying dividends shareholders.Therefore, the project financial cash flow analysis is a reasonable way to helpinvestors determine the date to be mobilized loans, costing financial interest andrepay principal All this is reflected through the repayment plan table of the project

Table of Plan to pay loans and interests

Items in the table are calculated as following:

(2) Final debt = initial debt + interest during process – payment during process +inceasing debt

(3) Interest arose during process is determined basing on initial debt correspondingwith each process

(4) Initial debt of new process is equal to final debt of the previous process

(5) Money ppaid during process depends on paying methods which the investorsand credit organizations both agree

- Table of expected revenue: revenue estimates reflect the expected income from

product salability in the future operation of the project

Table of output and expected revenue

- Tables of expected cost: reflects all costs incurred during the operation of the

project The expenses are determined on the basis of consumption of inputs toproduce the output level corresponding to an annual rate of the project and expectedprices of these inputs on the market

Tables of expected cost of project

Direct costs

- Cost for materials

- Costs for direct labours

- Cost for natural resources

- Cost for maintainance

- …

Cost for management

Cost for sale

Total cost

There are two methods that are often used to estimate the costs of projects: Method

of calculating revenues percentages and method of spending as the plan Besides,there is another method which appears to be the combination of these two above

- Table of profits and losses of the project: Profit and Loss plan table is built to

reflect the sum of the expected performance period (year, quarter, month)throughout the life of the project's future In the simplest form, the profits and losses

of the project planning table associated with two types of terms total too: revenueand costs Revenue reflects completion has been achieved from the project activities(sales and service revenue) Meanwhile, the cost of that level of effort has beenconsumed (consumption of property, the cost of inputs and financial costs) togenerate corresponding revenue Finally, two important results have been identified

in the project plan profit and loss table that is profit (EBIT and net profit) and theobligation to pay the annual corporate income tax Including corporate income taxrate is expected to be one of the items need to determine when the constructionproject cash flow planning

Profit and Loss plan table

Income before tax and interest (EBIT)

Interest that has to be paid (trừ)

Income before tax (EBT)

Bussiness income tax

Profit after tax

* All reasonable expenses are subtracted to calculate the taxable income:

- Depreciation of fixed assets

- The cost of raw materials, materials, fuel, energy and goods

- Salaries, wages and allowances

- The cost of scientific research, technology, innovation, improvement, health, labortraining

- Cost of services purchased

- Payment of interest on loans for production and business

- Quote of the reserves

- The cost of consumption of goods and services

- Expenses for advertising, marketing and promotion

- Taxes, fees and charges, land rent

The fee is deducted when calculating income subject to corporate income tax:

- Export tax

- Input value-added tax on goods and services exports

- Excise tax on domestic goods and services subject to excise tax

* Cost of goods sold: If inventory is 0, the cost of goods sold by annual direct costs

If other inventory 0, cost of goods sold will be determined based on the direct costand inventory accounting method selected Inventory accounting method to

calculate the selling price of goods sold can be is first calculated first method(FIFO); enter after the first (LIFO); weighted average method; either by name.

* The switching losses: When calculating taxable income in the profit and loss plan,

if the first year of the project at a loss, the losses are carried forward and deductedfrom taxable income the following year Under the provisions of the Vietnamesefinancial loss transfer time shall not exceed 5 years

Table plan cash flow is a detailed presentation of all the actual revenues and

expenditures with cash from operations, investing and raising capital to the projectfrom time to time that it arises

There are two methods of planning cash flow:

* The direct method: net cash flow from operations, investing and financingactivities of the project will be determined by dividing the cash inflows minus cashflow

* Indirect Method: The net cash flow from operations will be adjusted from profit tonet cash flow from investing activities and financing activities are determinedsimilar to the direct method

1.3.6 Evaluation of the project

- Target net present value (Net Present Value - NPV): The net present value is

the total net profit of the life of the project was discounted to present certaindiscount rate

* Formula:

on which:

Bi (Benefit) - The benefits of the project, ie including all the project measures (such

as sales letters, fee recovery, liquidation value recovery )

Ci (Cost) - The cost of the project, ie including all the project spending (such asinvestment costs, maintenance costs, repair, payment of tax and interest payments,etc.)

r - the discount rate

n - The number of years of economic activities of the project (economic life ofthe project)

i - time (i = 0,1 n)

n r r

r P

NPV

) 1 (

1 ) 1 (

(

1

n r

r r

r

G

NPV

n n

r n r

G

NPV

)1(

1)1(

Formulas in Excel

The NPV is: NPV (rate, value1, value2, )

NPV of the project: Investment (year 0) + NPV function

- If the project NPV is greater than 0, then the project is financial worth

- If the project has a variety of plans removing each other, the option with thelargest NPV is most financially valuable option

- If the project plan with the same benefits, the plan with minimum cost of presentvalue is financially worth.

* Advantages and disadvantages of NPV criteria

- Advantages: Shows the scale of interest earned by the life of the project

- Disadvantages:

+ NPV depends on the discount rate used to calculate The determination of thediscount rate is very difficult in volatile capital markets

+ Using this criterion requires clearly defined lines of revenue and the expenditure

of the project life This is a difficult task, not always expected

+ Index does not tell the efficient use of capital

+ This target is only used to select the project to remove in case of the same age Iflife is different, the selection based on this criterion will not make sense

- Targets the current annual value (Annual Value - AV): The current annual

value is the net present value, distributed evenly in the period analyzed from 1 to n

- Projects have larger AV is the more financially worth

- In the case of the project to remove each othẻ, the largest AV project is the bestfinancial project

- If the projects have the same income, which one has the smallest current annualcost (AVC) is worthwhile

* Advantages and disadvantages of AV targets:

- Pros: Be able to compare between projects with different life, there are times whenadditional investment is not the same

- Cons: Calculation results depend on the selected discount rate to calculate and alsomore efficient use of capital

- The ratio of benefit / cost (Benefit / Cost - B / C): The ratio of the present value

of benefits to the present value of the cost spent

* The formula for calculating  

* Advantages and disadvantages of B / C

- Advantages: stand out is that the effect of a capital spending

Disadvantages:

+ Depending on the selected discount rate to calculate

+ This is a relative evaluation criteria should easily lead to mistakes when selectingthe project type, which can ignore large project NPV (as usual plans large NPV, B /

C Small) So when using criteria B / C combined with indicator NPV and othercriteria

+ B/C large or small depends on the concept of the benefits and costs of theevaluation, using criteria B/C to select the projects to know the opinion of theevaluation of the financial benefits and costs

- Internal rate of return (Internal Rate of Returns - IRR): This ratio is

represented by interest rates but if you use it to convert the currency of the project,the present value of real income equal to the value current costs

* The formula for calculating

in which:

Bi - value income (Benefits) in i

Ci - The value of the cost (Cost) i n-time activities of the projectThere are two main methods to calculate the target IRR of the project

Interpolation method: Just select the high and low discount rate, for the two

values corresponding NPV: a negative and a positive value.Then apply the formula::

2 1

1 1

2

1 ( )

NPV NPV

NPV r

r r IRR

In which: r1is the discount rate for the NPV value1>0

r2is the discount rate for the NPV value2<0

Geometric method: Similar to the idea of the above methods, we show them

on the graph, the use congruent triangles consequence (or algebraic methods) todetermine IRR = r corresponding NPV is zero

Explanation: The OI = IRR (r discount rate for NPV = 0)

Consider two congruent triangles: ABI and DCI have the equation:

BI OB OI BI BI CI

BI AB

CD

AB CI

With the above analysis, the calculation of the IRR is very complex MicrosoftExcel program has a financial function to calculate the IRR The syntax of thefunction is as follows:

* Advantages and disadvantages of IRR criteria:

- Advantages: It indicates the maximum interest rate that can accept projects, so can

identify and select the interest rate calculated for the project

- Disadvantages:

+ Calculate IRR time-consuming

+ In case of the removal project together, using IRR to choose will easily lead tobypass large-scale projects net income (generally small big project NPV, IRR)+ Large additional investment project NPV change sign several times, when it isdifficult to determine the IRR

- Time of return on investment (Payback method - PP)

There are two cases where the payback period It's payback time no monetary valueand payback period based on monetary value Tend to use the method forcalculating the payback period by a higher monetary value because it reflects thereal value of the currency

Ingredient:

Target breakeven point is the point where level of output or revenue guarantee

for the investment project not to be lost in normal activities

Breakeven point can be made in the level of output or revenue

* The formula for calculating

Breakeven point calculated by the output Q n is defined as follows:

If known:

F is the total cost (fixed cost) of the project

v is the variable cost (variable cost) per unit of products and services

p is the unit price of products and services

Q0is the breakeven output

p v

F v p

F p p Q

0

0

Formulas are based on case manufacturers offer a variety of products andservices If manufacturers offer a variety of products and services need additionalweight of each type of products and services

=> Assessment

- Project breakeven point as small as possible, the smaller capacity loss

Co Total investment capital

NI + Amortization= Income + Amortization

PP =

- If the project has more options then any plan breakeven point is less than morehighly

In fact, projects in different sectors have different capital investment structureshould breakeven points are very different Therefore, the breakeven point is onlyconsidered for each specific project

* Advantages and disadvantages of target

- Advantages: Shows the breakeven output, which measures to shorten the time toreach the breakeven output This is significant when the market is more volatile

- Cons: This indicator does not tell the scale of profits as well as the effect of acapital spends

1.4 Sensitivity Analysis

* Sensitivity analysis: An investment projects often have a long life span.

But the calculation is based on assumptions The fact takes place is not likeassumed, so that the project can not stand Therefore, it is not necessary for projectanalysis when there are adverse changes compared with the initial assumptions It is

a sensitivity analysis of the project

Thus, the sensitivity analysis is to analyze the relationship between the inputquantities and output quantities unsafe

* The unsafe input quantities are:

* The affected output quantities are: