Financial Analysis and

Evaluation
 Contents

Financial Projection
Discounting
Non-discounting
Project financing
Multi-criteria decision making
 Take five minutes and write you expectations
 Project analysis

Technical analysis
Market and demand analysis
Financial analysis
Socio-economic analysis
Institutional analysis
 Financial Analysis

Cost of the project

Production cost
Means of finance
Profitability projection
 Financial projection

Discounting
Non-discounting
 Time value of money
Why is a Birr in hand today has more value
than a Birr to be received in one year? The
reasons may be one or a combination of the
following:
As a business man I live in an uncertain world. A
promise to pay me one Birr in one year is only a
promise until I actually get it.
Human nature naturally attaches more weight to
present pleasure than to the more distant joys.
A Birr received now is more valuable than a Birr
to be received one year from now because of the
investment possibilities that are available for
today's Birr.
 Interest Formulas

Interest is the excess amount which one

earns over ones money lent to some one else
(individual, banks, organizations, etc,).
Interest may arise from one of the following
reasons.
Discount Rate or Rate of Discount which is
another name for interest may also be
defined as the discount of one unit of
principal for one unit of time.
There are different ways of interest
computation depending upon the repayment
conditions.

i) Simple Interest: The interest calculated for

any period is based on the remaining
principal amount
 Let
i the interest rate per interest period

n the sum of interest periods (time periods)

C capital (Present sum of money)

S capital (Future sum of money)

R an end period payment in a uniform series

Simple interest (I) is given by:

I = C ni
S CI
C Cni
C (1 ni )
ii) Compound Interest: Whenever interests
are to be calculated for any interest period
the basis for computation will be the
remaining principal plus any accumulated
interest charges at the beginning of that
period

If C is invested at interest I
at n 1
S C C 1 i
C Ci C (1 i )
n2
S C (1 i) C (1 i)i

C Ci Ci 2
C 1 i
2

n3
S C 1 i
3
Therefore, at n period

S C 1 i
n

; and

1
CS
1 i n

1 i n is called the single payment Compound Amount Factor(C.A.F)

1
1 i n is called single payment Present Worth Factor (P.W.F).
 Discounting

Net Present Value

Benefit-Cost Ratio
Internal Rate of Return
 Net Present Value

NPV = NCF0 + (NCF1 x DF1) + NCF2 x DF2) + . + (NCFn x an)

Where, NCFn = annual net cash flow

n = number of years
an = discount factor
 Interpretation of NPV

A NPV of zero signifies that the benefits of the

project ( project cash in flows over time) are just
enough to recoup the capital invested and earn the
required return on the capital invested
A positive NPV implied that the project earns excess
return. Since the return to the providers of debt
capital in fixed, the excess return accrues solely to
equity shareholders, there by augment their wealth
A negative NPV implies that the project has no
ability to return the invested capital
 Advantages of NPV

It introduces the time value of money.

It expresses all future cash flows in
todays values. This enables direct
comparisons.
It allows for inflation and escalation.
It took at the whole project from start to
finish
It can simulate project what if analysis
using different values
 Disadvantages

Its accuracy is limited by the accuracy of

the predicted future cash flows and
interest rates.
It is biased towards short run projects.
It does not include non financial data like
the marketability of the product.
 Internal Rate of Return

Evaluation of a project with internal rate of

return provides the rate of return of the
project in its life time.
The Internal rate of return is the value of
the discount factor when the NPV is zero.
The IRR is calculated by either a trial and
error method or plotting NPV against IRR.
It is assumed that the costs are committed
at the end of the year and these are the only
costs during the year
 IRR vs NPV

Region A

IRR
Region B
 Interpretation of IRR

There are two economic interpretations of

internal rate of return:
The internal rate of return represents the
rate of return on the unresolved
investment balance in the project Rejoin
A on the figure
The internal rate of return is the rate of
return earned on the initial investment
made in the project Rejoin B on the figure
 Advantage of IRR
It considers the cash flow stream in its
entirety.
It takes in to account the time value of money.
It appears to business men who are wanted to
think in terns of return.
It appears particularly helpful in assessing the
margin of safety in a project.
The ranking of projects on the internal rate of
return dimension does not change with
variations in the cost of capital
 Disadvantage of IRR
It may not be uniquely defined. If the cash
flow stream of a project has more than one
change in sign, there in possibility of multiple
rates of return.
The Internal rate of return figure can not
distinguish between lending and borrowing and
hence a high internal rate of return need not
necessarily be a desirable feature.
The internal rate of return criterion can
mislead when choosing between mutually
exclusive projects that have substantially
different outlays.
 Benefit-Cost Ratio

BCR=PVB
I
where BCR= benefit- cost ratio
PVB= present value of benefits
I = Initial investment
NBCR=NPV =PVB-I
I I
Where NCBR= Net benefit- cost ratio.
NPV= Net present value
PVB= present value of benefits
I = Initial Investment
 Interpretation of BCR

When BCR NBCR Rule is

>1 >0 Accept

=1 =0 Indefinite
<1 <0 Reject
 Advantage

It discriminates large and small projects.

 Disadvantage
Under unconstrained conditions, the benefit- cost
ratio criterion will accept and reject the same
projects as the net present value criterion.
When the capital budget is limited in the current
periods, the benefit- cost ratio criterion may rank
project correctly in the order of decreasingly
efficient use of capital. However, its use is not
recommended because it provides no means for
aggregating several smaller projects in to a package
that can be compared with a large project.
When cash out flows occur beyond the current
period the benefit- cost ratio criterion is unsuitable
as a selection criterion
 Example of Tekeze

The cashflows of economic costs and benefits

are discounted at 12% resulting in the
following economic indices :
NPV IRR B/C Ratio
US$ 102M 15.5% 1.44

Sensitivity analysis showed these results to

be robust under unfavourable conditions.
 Beles Hydropower Development

Discount Rate EIRR

8% 10% 12% %

Net Benefits (US$ million) 77.9 45.4 26.4

22.0
Benefit/Cost Ratio 1.63 1.46 1.33
 Non-discounting Criteria

It is possible to measure a project

withwhileness and prioritizing projects
through non-discounting criteria evaluation.
Pay back period
Urgency
The accounting rate of
 Payback period

Evaluation of the pay back period is important

to measure the risk of the project in its life
time.
The lesser the pay back period the higher the
rank.
 Advantages
It is simple and easy to use.
It uses readily available accounting data to determine
cash flows.
It reduces the projects exposure to risk and
uncertainty
The uncertainty of future cash flows is reduced.
It is an appropriate technique to evaluate high
technology projects where the technology is changing
quickly and the project could run the risk of being
left holding out of the dead stock.
It also considers the liquidity of the firm.
It also useful when the danger of obsolescence is
greater, because it indicates that the investment is
safe when payback period is very short.
 Disadvantages
It ignores the life of the project beyond the
payback period.
It does not consider the profitability of the
projects.
It dose not consider the time value of money.
repayments if their payback periods were the same
It does not look at the total project.
The figures are based on project cash flow only. All
other financial data are ignored.
Although payback period would reduce the duration
of risk, it does not quantify the risk exposure.
 Urgency

Evaluation of the project importance and

urgency can help in prioritizing and selecting
of projects.
The greater the urgency the higher the rank.
According to this criterion projects that are
deemed to be more urgent get priority over
projects that are regarded as less urgent
The problem with this criterion; How can the
degree of urgency be determined?
 In many situations, however, it is difficult to
determine the relative degree of urgency
because of the lack of an objective basis. The
use of urgency criterion may imply that the
persuasiveness of those who propose project
would be come a very important factor in
investment decisions Resource allocation may
degenerate into a political battle.
In view of these limitations of the urgency
criterion, we suggest that in general if should
not be used for investment decision making,
In exceptional cases, where genuine urgency
exists, it may be used provided investment
outlays are not large.
 The accounting rate of return

The accounting rate of return; also referred

to as the average rate of return or the return
on investments, is a measure of profitability
which relates in come to investment, both
measured in accounting terms. Since income
and investment can be measured, there can be
a very large number of measures for
accounting rate of return .
 A = Average income after tax
Initial investment
B = Average income after tax
Average investment
C= Average income after tax but before interest
Initial investment
D=Average income before interests and taxes
Average investment
E=Average income after tax but interest and taxes
Average investment
F= Average income before interest and taxes
Average investments
 Interpretation

Obviously, the higher the accounting rate of

return the better the project
 Advantages

It is simple to calculate
It is based on accounting information which is
readily available and familiar to business man
It facilitates post-auditing of capital
expenditure
 Disadvantages

It is based up on accounting profit, not cash

flow
It does not take in to account the time value
of money
The argument that the accounting rate of
return measures facilitates post- auditing of
capital expenditure is not very valied. The
financial accounting system of a firm is
designed to report events with respect to
accounting periods and for profit centers but
not for individual investments.
 Discussion Topics

Discuss and list out major sources of finance

for a project.
 Project Financing

The financing of new projects continued to be

a problem, since corporate guarantees would
usually be required for loans to finance
projects.
Companies were therefore risking to the
extent of their total assets if a project
failed.
Development of project financing, therefore,
emerged from the need for companies to
shield themselves from such risks.
This has led to non-recourse or limited
recourse financing.
In this financing, creditors provide financing
to a project solely based on the merits of the
project itself, with limited or no recourse to
the companies sponsoring the project.
The project implementation demands the
establishment of a separate project company
by the project sponsors.
Such an arrangement has several advantages
for the sponsors.
It allows the sponsors to borrow funds to
finance a project without increasing their
liabilities beyond their investment in the
project.
Lenders assume a part of the project risks,
since they are lending without full recourse
and primarily on the basis of project assets.
On the other hand the sponsors have to
consider how to allocate risks to other
participants in their consortium.
They also need to carefully analyze the
financial feasibility of projects, in the light of
the risks involved and their proposed
distribution before submitting bids of
proposals for the schemes.
The financing is more often defined by its
revenue stream than by its products or
markets.
Interrelated contracts with third parties,
such as suppliers, purchasers/consumers and
government agencies, are crucial to the credit
support for the project.
Loan repayments are secured by project cash
flows, as in contractual agreements or as
indicated by demand forecasts, rather than by
projects assets.
To minimize their exposure to project risks
and uncertainty, project sponsors will rely
primarily on contract enforceability (or
guarantees).
Financial Flows of A Project Company
 Types of Capital

There are, in principle, three types of capital

available to all projects: equity, debt and
mezzanine capital.
Each plays a specific role in project financing
and has its own risk characteristics.
The return on each type of capital is
determined largely by its risk characteristics.
i) Equity Capital: It represents the funds
provided by the owners and is the lowest-
ranking capital of all in terms of its claims on
the assets of a project.
Normally, any distributions that can be made to
equity investors is done after all other project
obligations are satisfied.
If a project fails, therefore, all other claims must
be met before any claims can be made by equity
investors.
Equity investors therefore bear a higher degree of
risk than any other providers of capital.
Moreover, if after all other obligations are met, the
value of the remaining assets is less than the initial
equity capital of the project; the investors will bear
the loss.
Equity capital is also referred to as risk capital.
ii) Debt Capital: Senior debt has first claim
over all the assets of a project and must be
repaid first, according to a predetermined
schedule.
In contrast to equity capital, a projects senior
debt has the highest ranking of all capital.
The claims of others can be considered only after
the claims of senior debt are satisfied. It bears
the lowest risk of all capital and correspondingly,
the returns are usually limited to just the interest
payments on the loans, irrespective of how
successful the project may be.
Equity investors would prefer a debt-equity ratio
as high as possible.
iii) Mezzanine Capital: The key characteristic
of mezzanine capital is that it has both debt
and equity features and, correspondingly, it
has a risk profile that is somewhere between
debt and equity capital.
Examples of mezzanine financing are subordinated
loans and preference shares.
Both have the characteristics of debt, in that
regular payments of interest and/or capital are
involved.
However, payments are subordinated to senior
debt and need only be made when project funds
are available.
When they are not available, mezzanine financing
is treated like equity and no payments are made
hence, mezzanine financing provides projects with
an additional equity cushion.
However, when funds are available, mezzanine
payments take precedence over equity capital, such
as dividend payments.
For bearing greater risk than senior loans,
mezzanine capital will be rewarded with potentially
higher returns.
This is achieved in one of two ways: higher interest
rates than the projects senior loans and/or partial
participation in the profits or capital gains of
project equity.
Partial participation in capital gains can be
achieved by providing holders of subordinated
debt or preferred shares with share options,
convertible rights or warrants, so that they can
subscribe for shares of the project, usually at a
nominal price.
 Sources of Financing

It is a normal trend that debt, equity and

mezzanine capital are obtained from
different sources.
However, there are cases where a single
source provides more than one type of capital,
in which case separate departments may
handle the different types of capital
separately.
 The primary sources of capital are:

personal savings;
loans and sales of bonds;
profit plowback (Profits are used for
capital expansion).
 Job
Job Job
Business Income
Business Income Incom
e

Expense Expense
Expense

Asset Liability
Asset Liability
Liability

Middle Level Poor people

Rich people

Dr. Ing.- Daniel Kitaw Economic Model

i) Equity Capital Providers: The main source
of equity capital for a project comes from the
project sponsors or other investors that have
an active interest in the project.
This would include governments, contractors,
equipment suppliers, purchasers of output and
entrepreneurs.
Additional equity, if needed, would be sought from
passive sources, such as institutional investors and
possibly the general public through local or
international capital markets.
They are not normally involved in the promotion
and development or the management and operation
of the projects in which they invest. Their capital
is used to top up the equity requirements of a
project that cannot be met by sponsors.
ii) Commercial Banks: The most traditional
source of debt financing are commercial
banks.
To a lesser extent, they are also providers of
mezzanine capital.
Their operations essentially revolve around the
creditworthiness of their borrowers and the
security of their loans.
Much stress is put on prudential lending and
actions aimed at ensuring loan repayment. Some of
the considerations made by commercial banks
during the appraisal of a project are:
the level of commitment of the sponsors and other
major participants, in terms of investment and
personnel;
the completion and technical targets of the
projects budget, as any slippage will have an
adverse effect on the economic viability of the
project;
the experience and capabilities of project
management in implementing this type of project,
the degree of confidence in the projects cost and
revenue targets will be determined by the
reliability of the assumptions on which the inputs
supplies and demand projections are based;
the strength of government support, its
understanding of the private sectors profit
motives and its attitudes towards risk sharing
helps the project to succeed; and
iii) Export Credit Agencies: Export credit
agencies (ECA) are considered to be an
important source of long-term credit.
As lenders, ECAs have the same concerns and
requirements as commercial banks and would also
be signatories to the credit agreement.
However, ECAs are usually state-owned, and their
primary objective is the promotion of their
countrys exports and the grants are usually tied
to the purchase of equipment from the ECAs
country.
ECAs are usually substantially more generous than
those of commercial banks and highly suited to the
financing of long-term infrastructure projects.
iv) Bilateral and Multilateral Aid Agencies:
Many developing countries can also access
debt, equity and mezzanine financing from
bilateral and multilateral agencies, such as
that provided by the United States Agency
for International Development (USAID), the
Canadian International Development Agency
(CIDA), the Overseas Development
Administration of the United Kingdom (ODA),
the World Bank, the Asian Development Bank
(ADB) and the European Bank for
Reconstruction and Development (EBRD).
Bilateral sources of financing, including export
credits, are the most attractive funds available to
a project in terms of lower interest and longer loan
periods.
v) Institutional investors: Institutional
investors as a source of debt, equity and
mezzanine financing are non-bank financial
institutions such as insurance companies,
pension funds and investment funds.
Institutional investors distinguish themselves
from commercial banks in that they mobilize
long-term contractual savings as opposed to
short-term deposits.
By virtue of the long-term nature of the funds,
many institutional investors are able to provide
long-term debt, mezzanine and pure equity
financing.
Institutional investors are therefore an
important source of long-term funds for large
projects.
vi) National and Regional Development Banks:
Financial appraisal looks at the financial
viability of projects from the standpoint of
project sponsors, investors and commercial
lenders, while economic appraisal looks at the
economic viability of projects from the
standpoint of national costs and benefits and
the best use of a countrys resources. It is
conceivable, therefore, that a project that is
economically viable may not be financially
viable and vice versa.
Examples of such divergence are infrastructure
projects that are critical to the economic
development of a region but which governments
decide to implement on a non-tariff basis or for
which they decide to charge user fees that do not
fully cover operational costs.
vii)Capital Markets: Institutional investors also
invest heavily in the public securities markets
(international capital markets) by way of
investment in marketable debt and equity
securities.
The key to accessing financing from the capital
markets has been the sponsors ability to bring
together reputable and extremely creditworthy
project participants through all phases of the
project cycle and hence to construct strong and
highly rated security packages.
Independent companies in developed countries and
even in some developing countries are tapping the
capital markets directly by issuing bonds.
viii) Local currency Funding: The mobilization
of local currency funding is an important
aspect of financing. However, this may be
difficult in some developing countries.
If capital, on attractive terms and for the
required amounts and in the desired currencies, is
to be mobilized, new mechanisms and structures
need to be found.
To date, the financial markets of developing
countries have been characterized by the
dominance of commercial banks, a narrow choice of
savings instruments and interest rate distortion in
the credit markets.
 Discussion Topic

Discuss a means or a mechanism to evaluate

alternative project evaluation and selection.
More specifically in the case of
Alternative investment decision and
Project financing
Alternative project evaluation and
selection
Multi-Criteria Decision Making (MCDM)

Decision making is the process of arriving at a

determination based on consideration of
alternatives.

It involves making decision based on more

than one criterion, usually conflicting criteria.
Multi-criteria decision making models

Linear Goal Programming (LGP),

Multi-Attribute Utility Theory (MAUT),
Technique for Order Performance By
Similarity to Ideal Solution (TOPSIS),
Merit Point System (MPS) and
Analytic Hierarchy Process (AHP).
 Analytic Hierarchy process
The Analytic Hierarchy Process (AHP) was
developed by Thomas L. Saaty in the 1970s.
AHP provides a flexible and easily understood
way to analyze and decompose the decision
problem.
AHP allows subjective as well as objective
factors to be considered in the evaluation
process.
AHP is a method that can be used to establish
and connect both physical social measures,
including cost, time, public acceptance,
environmental effects, and so on.
In its general form, it is a framework for
performing both deductive and inductive
thinking.
Steps used to solve problem with AHP

Structuring hierarchy
Hierarchic Structure
Goal

Criteria-1 Criteria-2 Criteria-3 Criteria-4 Criteria-5

Alternative-1 Alternative-2 Alternative-3

 Setting priorities
Intensity of definition
importance
1 Equal importance
3 Moderate importance of one over
the other
5 Essential or strong importance
7 Very strong importance
9 Extreme importance
2, 4, 6, 8 Intermediate values between the
two adjacent judgments
Explanation
Two elements contribute equally to
the element
Experience and judgment slightly
favor one element over another
Experience and judgment strongly
fever one element over another
An element is strongly favored and
its dominance is demonstrated in
practice
The evidence favoring one element
over another is of the highest
possible order of affirmation
Compromise is needed between two
judgments
 Synthesis
we have to do some weighting and adding to
give us a single number to indicate the
priority of each element.

Check the consistency

If the consistency level is below 0.1, select

the top ranked; otherwise go to the pair wise
comparisons.
 Illustration of the AHP
Step1. Identify decision hierarchy
Goal
Appraisal of
project

Financial
Technical Market& Demand Numerical
Objective

Project A Project A Project A

Project A

Project B Project B Project B Project B

Alternatives
Project C Project C Project C Project C
 Step 2. Establish priorities.
1.The priorities of the four criteria in terms of over all goals.

technical market financial Numerical

criteria
financial 3 1/4 1 1/6
market 5 1 4 1/7
Numerical 8 7 6 1
technical 1 1/5 1/3 1/8

2. Priorities of the three projects in terms of the technical criteria

technical Project A Project B Project C

Project A 1 4 3
Project B 1/4 1 2
Project C 1/3 1/2 1
3. Priorities of the three projects in terms of the market and demand
criteria

Market Project A Project B Project C

Project A 1 1/6 2
Project B 6 1 5
Project C 1/2 1/5 1

4. Priorities of the three projects in terms of the finance criteria.

Finance Project A Project B Project C

Project A 1 1/3 1/2
Project B 3 1 4
Project C 2 1/2 1
5. Priorities of the three projects in terms of the numerical criteria.

Numerical Project A Project B Project C

Project A 1 1/3 1/4
Project B 3 1 6
Project C 4 1/6 1
Step-3 Pair wise comparison matrix showing preferences
for the three projects in terms of the criteria (objectives).

1.Pair wise comparison matrix showing preferences for the

three projects in terms of the technical criteria.

Step-1.Sum (add up) all the values in each column.

Technical Project A Project B Project C

Project A 1 4 3
Project B 1/4 1 2
Project C 1/3 1/2 1
Sum 19/12 11/2 6
 Step- 2 The value in each column are divided by the corresponding
columns sums.

Technical Project A Project B Project C

Project A 1/(19/12)=12/19 4/(11/2)=8/11 3/6=1/2
Project B 1/4/(19/12)=3/19 1/(11/2)=2/11 2/6=1/3
Project C 1/3//(19/12)=4/19 1/2/(11/2)=1/11 1/6=1/6

Step - 3.Convert fractions in to decimals and find the average of each

raw.

Technical Project A Project B Project C Raw average

Project A 12/19=0.632 8/11=0.727 1/2=0.5 0.620
Project B 3/19=0.158 2/11=0.182 1/3=0.333 0.224
Project C 4/19=0.211 1/11=0.091 1/6=0.167 0.156
 2. Pair wise comparison matrix showing preferences for the three
projects in terms of the market criteria. Step-1

Market Project A Project B Project C

Project A 1 1/6 2
Project B 6 1 5
Project C 1/2 1/5 1
sum 15/2 41/30 8

Step-2
Market Project A Project B Project C
Project A 1/(15/2)=2/15 1/6/(41/30)=5/41 2/8
Project B 6/(15/2)=12/15 1/(41/30)=30/41 5/8
Project C (15/2)=1/15 1/5/(41/30)=6/41 1/8
step 3
Market Project A Project B Project C Raw average
Project A 2/15=0.133 5/41=0.122 2/8=0.25 0.168
Project B 12/15=0.8 30/41=0.732 5/8=0.625 0.719
Project C 1/15=0.067 6/41=0.146 1/8=0.125 0.113
3.Pair wise comparison matrix showing preferences for the three
projects in terms of the financial criteria.

Finance Project A Project B Project C

Project A 1 1/3 1/2
Project B 3 1 4
Project C 2 1/2 1
sum 6 19/12 11/2

Finance Project A Project B Project C

Project A 1/(6)=1/6 1/3/(19/12)=4/19 1/2/(11/2)=1/11
Project B 3/(6)=3/6 1/(19/12)=12/19 4/(11/2)=8/11
Project C 2/(6)=2/6 1/2/(19/12)=3/19 1/(11/2)=2/11

Finance Project A Project B Project C Raw average

Project A 1/6=0.167 4/19=0.211 1/11=0.091 0.156
Project B 3/6=0.5 12/19=0632 8/11=0.727 0.62
Project C 2/6=0.333 3/19=0.158 2/11=0.182 0.224
4. Pair wise comparison matrix showing preferences for the three
projects in terms of the numerical criteria.

Numerical Project A Project B Project C

Project A 1 1/3 1/4
Project B 3 1 6
Project C 4 1/6 1
sum 8 9/6 29/4
Numerical Project A Project B Project C
Project A 1/8 1/3/(9/6)=2/9 1/4/(29/4)=1/29
Project B 3/8 1/(9/6)=6/9 6/(29/4)=24/29
Project C 4/8 1/6/(9/6)=1/9 1/(29/4)=4/29

Numerical Project A Project B Project C Raw average

Project A 1/8=0.125 2/9=0.222 1/29=0.035 0.127
Project B 3/8=0.375 6/9=0.667 24/29=0.828 0.623
Project C 4/8=0.5 1/9=0.111 4/29=0.138 0.25
 5. Pair wise comparison matrix showing preferences for the three
projects in terms of the criteria (objectives).

technical market financial Numerical

criteria
financial 3 1/4 1 1/6
market 5 1 4 1/7
Numerical 8 7 6 1
technical 1 1/5 1/3 1/8
sum 17 169/20 34/3 482/336

technical market financial Numerical

criteria
financial 3/17 1/4/(169/20)=4/ 1/(34/3)=1/34 1/6/(482/336)=
169 42/482
market 5/17 1/(169/20)=20/ 4/(34/3)=12/34 1/7/(482/336)=
169 48/482
Numerical 8/17 7/(169/20)=5/1 6/(34/3)=3/34 1/(482/336)=56
69 /482
technical 1/17 1/5/(169/20)=1 1/3/(34/3)=18/3 1/8/(482/336)=
40/169 4 336/482
 technical market financial Numerical Raw
criteria average

Technical 3/17=0.059 4/169=0.024 1/34=0.029 42/482=0.087 0.05

Market 5/17=0.294 20/169=0.118 12/34=0.353 48/482=0.1 0.216

Financial 8/17=0.176 5/169=0.03 3/34=0.088 56/482=0.116 0.103

Numerical 1/17=0.471 140/169=0.828 18/34=0.529 336/482=0.697 0.631

 Step-4.Developing an over all priority ranking.

Technical market Finance Numerical Criteria ranking

Project A 0.62 0.168 0.156 0.127 * 0.05
Project B 0.224 0.719 0.62 0.623 0.216
Project C 0.156 0.113 0.224 0.25 0.103
0.632
Over all project A priority =0.62*0.05 +0.168*0.216+0.156*0.103+0.127*0.632
= 0.164
Over all project B priority =0.224*0.05 + 0.716*0.216 + 0.62*0.103 + 0.623*0.632
=0.623
Over all project C priority =0.156*0.05 + 0.113*0.216 + 0.224*0.103 + 0.25*0.632
=0.213
 Project Score

Project A 0.164
Project B 0.623
Project C 0.213

Step -5.Conclusion
Based on the score project B should be appraised first and financed
confidentially.
 Multi-Criteria Model
Technical analysis
Market and demand analysis
Financial Analysis
Socio-economic analysis
Institutional analysis
Discounting criteria
Non-discounting criteria
 Technical analysis
Raw materials
Production process/technology
Machinery and equipment
Plant capacity
Location and site
Project charts and layout
Schedule of project implementation
Market and demand analysis
Demand analysis
Supply analysis
Marketing strategy

Financial Analysis
Cost of the project

Production cost

Means of finance

Profitability projection
Socio-economic analysis
Employment effect

Net foreign exchange effect

Impact of the project on net social benefits

or welfare

Environmental impact

Institutional analysis
Managerial analysis

Organization

Manpower
Discounting criteria
Net present value
Benefit-cost ratio
Internal rate of return

Non-discounting criteria
Urgency
Pay back period
Accounting rate or return
 MCDM model for project evaluation
Goal
Select viable project to finance

Criteria Non-discounting Criteria

Technical Analysis Market and Demand Analysis Financial Analysis Socio-economic Analysis Institutional Analysis Discounting Criteria

Cost of the Production Means of Profitablity Employment Net Foreign Net Social Environmental Managerial Organization Benefit-cost Internal Urgency Pay Back Accounting
Sub-criteria Raw Production Machinery, Plant Location & Project Demand Supply Marketing Manpower Net Present
Project Cost Finance Projection Exchange Benefits Impact Analysis Value Ratio Rate of Period Rate of
Materials Process Equipment Capacity site Charts & Shedule of Analysis Analysis Strategy Effect
Return Return
layout Impliment.

Alternatives

Alterinative A Altarnateve B Alternative C

 Take a few minute and write your
reflections