project appraisal method
TRANSCRIPT
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Evaluation ofGMR
Hyderabad
InternationalAirport Limited
(GHIAL)
Presented By:-
Mihir Nisar
Chintan Nagar
Jinay Sheth
Harshil JasaniKiran Jadhav
Mayank Saxsena
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Hyderabad International
Airport LimitedO GMR-Construction on Highways, Urban
Infrastructure, Agri-Business.
O In 1999; GMR entered into the Airport
Sector.
O Won a competitive bidding process by
the Govt. of Andhra Pradesh, it won thebid to construct GHIAL.
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Hyderabad International
Airport LimitedOStarted as a Public-Private
PartnershipO 63% Hyderabad International Airport
O 11% Malaysia Airports Holding
Berhad
O 13% Government of Andhra Pradesh
O 13% Airports Authority Of India
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Hyderabad International
Airport LimitedO Initial license period of 30 years with an
option to extend it for next 30 years.
O
GMR designed GHAIL to meetinternational standards.
O Designed for 7 million passengers perannum.
O Increased Capacity:-O 12 million passenger per annum
O 1 Lakh tones of cargo per annum
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Hyderabad International
Airport LimitedO Debt-Equity ratio:- 4:1
O Funded by :-Abu Dhabi commercial bank,Andhra Bank and Vijaya Bank.
O Project Life:- 30 Years
O Project Cost:- 24,780 million
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Time required to recover original investment
Simple & widely used method
Formula:-
Pay back period =
original cost of investment
annual cash inflows
PAY BACK PERIOD
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Time required to recover original investment
Simple & widely used method
Formula:-
Pay back period= 1 1 +(;9.)
5112
= 11.7865
PAY BACK PERIOD
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Merits:-
1. Best when project have shorter period & less
cost.
2. Easy to operate & simple to understand.
3. Helps entrepreneur to evaluate in quick
return funds.
PAY BACK PERIOD
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Demerits:-
1. More on liquidity then profitability.
2. Not cover the earning beyond pay back
period.
3. Suitable for small project.
4. Ignores cost of capital.
PAY BACK PERIOD
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Better than pay back period method
Considers earnings of full project during its
economic time Also known as return on investment (ROI)
Formula:-
Return on investment =average earning after tax
average investment
AVERAGE RATE OF
RETURNS (ARR)
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Better than pay back period method
Considers earnings of full project during its
economic time Also known as return on investment (ROI)
Formula:-
Return on investment =1 5 6 124780 X 100
= -6.303%
AVERAGE RATE OF
RETURNS (ARR)
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Merits:-
1. Simple to calculate & easy to understand
2. Consider earning of full life
3. Helps to comparing with other projects
4. Consider net earnings after depreciation & taxes
AVERAGE RATE OF
RETURNS (ARR)
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Demerits:-
1. Ignores time value of money
2. More focus on profit & loss
3. Not consider re-investment of profit over years
4. Not compare between size of investment
AVERAGE RATE OF
RETURNS (ARR)
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Consider time value of money
It compare rupee value of today & after a year
Calculate by present value
Formula:-
Where, S= cash flow
N= no. Of years
R= interest rate
NET PRESENT VALUE
PRESENT VALUE =
(:)
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Consider time value of money
It compare rupee value of today & after a year
Calculate by present value
Formula:-
NET PRESENT VALUE
PRESENT VALUE = 24780 + 2863
(:.9)
+ 3725
(:.9) +5120
(:.9)
= 5222
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NET PRESENT VALUE
Merits:-
1. Consider time value of money
2. Scientific method
3. Covers whole project
4. Future flow in todays value
5. Objective of maximum profitability
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NET PRESENT VALUE
Demerits:-
1. Difficult to calculate
2. Biased towards short run projects
3. Not consider non-financial activity like
marketability
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Ratio of present value of inflow & outflow
Profitability ratio of project more than 1 is to
be selected
Formula:-
Profitability index =
PROFITABILITY INDEX
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Ratio of present value of inflow & outflow
Profitability ratio of project more than 1 is to
be selected
Formula:-
Profitability index =
=1.21
PROFITABILITY INDEX
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PROFITABILITY INDEX
Merits:-
1. Conceptually sound
2. Consider time value of money
3. Facilitates ranking of project
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PROFITABILITY INDEX
Demerits:-
1. Computation process is complex
2. Different interpretation
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Use time value of money
NPV reduce to zero
IRR= 10.49% (with interpolation)(10% =1554, 11%= -1562)
INTERNAL RATE OF
RETURNS (IRR)
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INTERNAL RATE OF
RETURNS (IRR)
Merits:-
1. Recognized time value of money
2. Consider cash flow for whole life
3. Takes into account true value of money
4. Objective of maximizing owners welfare
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INTERNAL RATE OF
RETURNS (IRR)
Demerits:-
1. Difficult to understand & use
2. Decision making is depends on the future
financial projection
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COMPARISION
Payback
PeriodDiscounted
Payback
Period ARR NPVProfitability
Index IRR11.78 Years 21.76 Years -6.30%5222.20Millions 1.210743 10.49%Accept Accept Reject Accept Accept Accept
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conclusion
This is profit making project
We Should Accept this project