ENTREPRENEURSHIP DEVELOPMENT

Definition. ØNature & Characteristics of Entrepreneurship.. ØTypes of Entrepreneurship. ØFunctions of Entrepreneurs. Click to edit Master subtitle style ØBarriers in entrepreneurship Development. ØQualities of an Entrepreneur. ØConcept of Small Scale Industries. ØGrowth of SSI in Developing Countries. ØPosition of SSI.
Ø

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Definition of Entrepreneurship

“Entrepreneurship is the purposeful activity of an individual or group of individual to initiate, maintain or generate profit by production or distribution of goods or services.” “Entrepreneurship is an attempt to create value through recognition of business opportunity, risk taking through the communicative and management skills to mobilize human, financial & material resources for a project.” 4/27/12

Nature & Characteristics
 Innovation. High Achievement. Managerial Skills. Leadership. Risk Taking. Limited Resources.
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Types of Entrepreneurs
Innovative Entrepreneurs. Adoptive Entrepreneurs. Fabian Entrepreneurs. Drone Entrepreneurs.

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Functions of Entrepreneur Perceiving market Opportunities.
Command over resources. Purchasing Input. Marketing of products. Managing Finance. Managing Production. New product Development. Managing Customers. Dealing with Public officials ( Taxes, licences) Upgrading Production Process & Product 4/27/12

Barriers to Entrepreneurship
Lack of market knowledge. Lack of Capital. Lack of Business Know how. Legal Obligation/Regulation. Monopoly. Lack of Technical Skills. Social Stigma. Time pressure.
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Qualities of an Entrepreneur
Drive to achieve & grow. Risk taker. Innovative. Sense of humour. Problem Solving skills. Good decision maker.

Total Commitment & Determination.

Low need for status & power. Seeking & using feedback.
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Growth of SSI In Developing Countries
Year Production (Billion Rs.)(at current prices) Employment (Million nos.) Exports (Billion Rs.)(at current prices) 1993-94 2416.48 13.93 253.07 2416.48

Production (Billion Rs.)(at current prices)

1994-95

2988.86

14.65

290.68

2988.86

1995-96

3626.56

15.26

364.70

3626.56

1996-97

4118.58

16.00

392.70

4118.58

1997-98

4626.41

16.72

444.42

4626.41

1998-99

5206.50

17.15

489.79

5206.50

1999-00

5728.87

17.85

542.00

5728.87

2000-01

6454.96

18.56

599.78

6454.96

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Position of SSI
The phenomal growth of industries in the Small Scale sector has been striking feature in the economic development of the country since independence. It has contributed to the overall growth or the Gross Domestic Product as well as in terms of employment generation and export. One of the measure of the policy support for promoting small scale industries is the policy of reservation of economically viable and technically feasible items for exclusive manufacture in the small scale sector. The policy of reservation initiated in 1967 primarily as promotional and protective measure vis-a-vis the large scale sector, grants protection to small scale sector, the only exception being the case of large units which undertake minimum level of exports as 75 per cent of their total roduction.The IDR Act was amended in March, 1984 empowering Government to reserve items for the small scale sector. Reservation/De-reservation of items for manufacture in the small scale sector is a continuing process regularly monitored by an Advisory committee on Reservation 4/27/12 constituted under the IDR Act. at present the total number of

Position of SSI
The small scale sector has acquired a prominent place in the socio-economic development of the country during the past four and a half decades. Performance of the small scale sector, which forms a part of total industrial sector, therefore, has direct impact on the growth of the national economy. There has been a steady increase in the number of SSI units, their production, employment and exports over the years. from 19,58,000 units in 1990-91, the number of units has increased to 33, 70,000 units in the year 2000-01. On the production 4/27/12

Small Scale Industrial Undertakings The following requirements are to be complied with by an industrial undertaking to be graded as Small Scale Industrial undertaking w.e.f. 21.12.1999. An industrial undertaking in which the investment in fixed assets in plant and machinery whether held on ownership terms on lease or on hire purchase does not exceed Rs 1 Crore/ 10 Million. (Subject to the condition that the unit is not owned, controlled or subsidiary of any other industrial undertaking
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INVESTMENT LIMITS FOR SSI

INVESTMENT LIMIT FOR ANCILLARY UNITS
Ancillary Industrial Undertakings The following requirements are to be complied with by an industrial undertaking for being regarded as ancillary industrial undertaking: An industrial undertaking which is engaged or is proposed to be engaged in the manufacture or production of parts, components, sub-assemblies, tooling or intermediates, or the rendering of services and the undertaking supplies or renders or proposes to supply or render not less than 50 per cent of its production or services, as the case may be, to one or more other industrial undertakings 4/27/12 and whose investment in fixed assets in plant

INVESSTMENT LIMIT FOR TINY INDUSTRIES
The Enterprises Investment limit in plant and machinery in respect of tiny enterprises is Rs 25 lack irrespective of location of the unit.

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Employment: Small scale firms use labourintensive techniques and, therefore, they have high potential to provide employment to a larger number of people per unit of capital. For every worker employed in large scale industries about three workers are engaged in small scale and cottage industries. Next to agriculture small business constitutes the most popular occupation of people in India. Small firms promote self-employment particularly among the educated and professional class. They also provide employment to agriculturists who remain idle during a part of the year. In fact, the healthy growth of small scale industries can be 4/27/12 an effective approach to the pressing problem

ROLE OF SSI IN NATIONAL ECONOMY

Balanced Regional Development: small scale industries promote decentralized development and help to remove regional disparities in industrialization. Decentralized development contributes to the process of selfsustained growth and avoids concentration of industries in particular areas. By providing employment in rural areas they help to check migration and overcrowding in urban areas. Small scale firms can be a useful means of rural reconstruction and development. Development of decentralized sector also improves the standard of living of people in backward regions.  4/27/12

ROLE OF SSI IN NATIONAL ECONOMY

Optimization of Capital: Small scale firms require less capital per unit of output and, therefore, greater output can be obtained with small investment. The Annual Surveys of industries reveal that fixed capital per employee in case of small scale industry was Rs. 3,706 as compared to Rs. 27,757 in case of large scale industry. Small firms also provide quick returns after their establishment on account of short gestation period. In India where the rate of capital formation is low, small scale industries are very suitable. 
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ROLE OF SSI IN NATIONAL ECONOMY

ROLE OF SSI IN NATIONAL ECONOMY
Mobilization of Local Resources: Small scale industries facilitate Mobilization and utilization of local resources and family skills which might otherwise remain talent or utilized. Small business promotes a new cadre of small entrepreneurs and self-employed and encourages local talent. The growth of small enterprises helps in tapping talent resources like entrepreneurial skills and small savings specially in rural areas. Small business helps to protect technical skills and handicrafts. 
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 Exchange Earnings: Small scale industries help in reducing pressure on the country's balance of payments in two ways. First, they do not require imports of sophisticated machinery and equipment. Secondly, they earn valuable foreign exchange through exports of their products. The exports of small scale industries increased from Rs. 637 crores in 1975-76 to Rs. 2785 crores in 1985-86. Small scale sector accounts for 40 percent of the exports of nontraditional items and about 25 per cent of the country's total exports. About 90 per cent of its exports are of non-traditional items. 
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ROLE OF SSI IN NATIONAL ECONOMY

ROLE OF SSI IN NATIONAL ECONOMY
Feeder to Large industries: small scale sector is complementary to the large scale industries. Small scale industries manufacture various types of components, spare parts, tools and accessories which are required by the large scale sector. 

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ROLE OF SSI IN NATIONAL ECONOMY
Social Advantage: Small scale units offer opportunity for an independent way of life to people with small means. They offer savings in social overheads like education, housing and medical facilities by taking industry nearer to the people. They help to raise per capita income an standard of living in the country. A system of widely diffused ownership permits wider participation of people in the process of economic development. Small scale sector provides a base for democracy, socialism and self-government.  At present there are about 16 lakh small scale
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CHARECTERSTICS OF SSI
Labour intensive Small-scale industries are fairly labourintensive. They provide an economic solution by creating employment opportunities in urban and rural areas at a relatively low cost of capital investment. Flexibility Small-scale industries are flexible in their operation. They adopt quickly to various factors that play a large part in daily management. Their flexibility makes them best suited to 4/27/12 constantly changing environment.

CHARECTERSTICS OF SSI
One-man show A small-scale unit is generally a one-man show. It is mostly set up by individuals. Even some small units are run by partnership firm or company, the activities are mainly carried out by one of the partners or directors. Therefore,' they provide an outlet for expression of the entrepreneurial spirit. As they are their own boss, the decision making process is fast and at times more innovative.
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CHARECTERSTICS OF SSI
Use of indigenous raw materials Small-scale industries use indigenous raw materials and promote intermediate and capital goods. They contribute to faster balanced economic growth in a transitional economy through decentralization and dispersal of industries in the local areas. Localized operation Small-scale industries generally restrict their operation to local areas in order to meet the local and regional demands of the people. They cannot enlarge their business activities due to limited resources. 4/27/12

CHARECTERSTICS OF SSI
Lesser gestation period Gestation period is the period after which the return or investment starts. It is the time period between setting the units and commencement of production. Small-scale industries usually have a lesser gestation period than large industries. This helps the entrepreneur to earn after a short period of time. Capital will not be blocked for a longer period.
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CHARECTERSTICS OF SSI
Lower Educational level The educational level of the employees of small industries is normally low or moderate. Hardly there is any need of specialized knowledge and skill to operate and manage the SSI.

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CHARECTERSTICS OF SSI
  Profit motive The owners of small industries are too much profit conscious. They always try to keep high margins in their pricing. This is one of the reason for which the unit may lead to closure.

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Manufacturing Industries

TYPES OF SSI

Those units which are producing complete articles for direct consumption and also for processing industries are called as manufacturing industries. For example : Power looms, engineering industries, coin industries, khadi industries, food processing industries etc. Ancillary Industries: The industries which are producing parts and components and rendering services to large industries are called as ancillary industries.
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TYPES OF SSI
Service Industries Service industries are those which are covering light repair shops necessary to maintain mechanical equipments. These industries are essentially machine- based. Feeder Industries Feeder industries are those which are specializing in certain types of products and services, e.g. casting, electro-plating, welding, etc. Tiny Industries It consists village, Cottage, Handicraft etc.
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DEMEND BASED ANCILLARIES UNIT
§ I.T. Centre § DTP Centre/ Cyber Café. § STD/ ISD/ Xerox Centre § Computer Hardware repairing/ servicing. § Screen Printing. § Book Binding. § Electronic spare parts repair unit. § Automobile repairing workshop.
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Truck/ Bus Building.

DEMEND BASED ANCILLARIES UNIT

Tyre Retreading unit.  Spray Painting/ denting.  Repairing/ Hiring of earth moving machine.  Hotel/ Motel.  Ball Point pen.  Computer Paper/ Sheets.  Packaged Drinking Water.
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DEMEND BASED ANCILLARIES UNIT
 Infant Food.  Dry Cleaning/ Laundry.  Hair Dresser.  Naphthalene.  Phenyle manufacturing.  File Covers/ Folders.

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RESOURCE BASED ANCILLARY UNITS

§ Paddy Processing § Chura/ Poha making. §  Badi & Papad making. § Leaf cup & plate making. § Spices Grinding
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GOVT. POLICY FOR SSI
After attaining independence in 1947 India adopted mixed economic planning as a method to achieve economic development. Along with the Large Scale sector the thrust was on Small Scale sector because of it decentralized, its small size, use mainly indigenous technology, employment intensity and its suitability for rural area with limited techno-economic structure. Industrial policies over the year have focused to promote SSIs through various incentives related to financial, fiscal and infrastructure measure; along with a heavy industrial base.
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INDUSTRIAL POLICY RESOLUTION 1948
SSIs are particularly suited for the utilization

of local resources and creation of employment opportunities . primary responsibility for developing small industries by creating infrastructure has been provided to state government . and coordinates the efforts of Government for development of SSIs. State

The

Central government frame the broad policies

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INDUSTRIAL POLICY RESOLUTION 1956

It stated that besides continuing the policy support to cottage, village and small industries by differential taxation or direct-subsidies, the aim of state policy would be that the development of this sector is integrated with that of large scale industry. The focus was to improve the competitive strength of SSIs.

To achieve this 128 items were exclusively reserved for production in SSIs, and 166 items were reserved for exclusive purchase by government from this sector.

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INDUSTRIAL POLICY RESOLUTION 1977
504 items were reserved for exclusive

production in the small scale industries . (DICs) was introduced to that in each district a single agency could meet all the requirement of SSIs under one roof.

The concept of District Industrial Centers

Technological up gradation was emphasized in

traditional sector .

Special marketing arrangement through the

provision of services, such as, production standardization, quality control, market 4/27/12 survey, were laid down.

INDUSTRIAL POLICY RESOLUTION 1990 in plant and It raised the investment ceiling
machinery for SSIs.
It created central investment subsidy for this

sector in rural and backward area.
Also, assistance was granted to woman

entrepreneurs for widening the entrepreneurial base. increased to 836.

Reservation of items to be produced by SSIs was  Small Industries Development Bank of India was

established to ensure adequate flow of credit to SSIs.

4/27/12 was reiterated to upgrade technology to Stress

INDUSTRIAL POLICY RESOLUTION 1991
articles of manufacture.

SSIs were exempted from licensing for all The investment limit for tiny enterprises was

raised to Rs.5 lacs irrespective of location.
Equity

participation by other industrial undertaking was permitted up to a limit of 24% of shareholding in SSIs. problem of delayed payment to SSIs.

Factoring services were to launch to solve the Priority was accorded to small and tiny units

in allocation of indigenous and raw materials. promotion emphasized through

Market 4/27/12

of products was co-operatives, public

RESERVATION POLICY
Out of 836 items reserved in 1989,39 items

were dereserved in four phases viz.,

15 items in 1997’ 9 items on 1999 1 item on 2001 and, 14 item on 2001.subsequently, 51 item were dereserved in 2002, 75 item in 2003 and 85 items in 2004, 108 in March 2005 and 4/27/12

Under the Store Purchase Policy of the

PURCHASE PREFERENCE POLICY
Government 409 items of store were reserved for exclusive purchase from KVIC/Women’s Development Corporation/Small Scale units in 1989. consider the question of inclusion of additional items) revised list and 358 items were approved , after deleting items having common nomenclature and addition of some new ones.

In February2004, the Committee (set up to

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PRICE PREFERENCE POLICY
Price preference up to 15%in case of selected

items.

No registration fee. A consortium to channelize and identify for

the production of SSIs both in India and abroad.

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TECHNICAL ASSISTENCE
Technology audits and benchmarking Technology needs assessment Technology sourcing Application of new acquisition. Technology acquisition . Material testing facilities through accredited

laboratories. Designs.

Product design including Computer Aided
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NEW INITIATIVES
Advisory and Mentoring services Technology Business Incubators > Information technology. > Production design. > Energy and Environment > Bio-Technology . > Electronics and Communications Suppliers Rating Accreditation Services.
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PROJECT IDENTIFICATION
INTRODUCTION A project is for setting up a plant and when the plant becomes operational, the project is treated as completed. A project is neither a physical objective nor is it the end-result. It has something to do with the activities that go on, which must be the same, whether it is to build a nuclear power plant or launching a new detergent. A project first emerges as a concept and follows various stages, till it gets commissioned. From the point of concept to commissioning, varying data-flow is required at the right time to the right people. Project 4/27/12 management envisages meticulous planning,

PROJECT DEFINITION & CHARACTERISTICS

A project is defined as “a non-routinerepetitive one-off undertaking normally with discrete time, financial and technical performance goals”. The definition is descriptive and, because of the endless variety of projects, most of the definitions are of this nature. As, another: ‘A project can be considered to be any series of activities and tasks that:
have a specific objective to be completed

within certain specifications

have defined start and end dates
4/27/12 have funding limits (if applicable)

CHARECTERSTICS
§ A project has a mission or a set of objectives.

Once the mission is achieved the project is treated as completed.

§ A project has to terminate at some time or

the other; it cannot continue forever. The set of objectives indicate the terminal stage of the project. are several, the project is one single entity and its responsibility is assigned to one single agency.

§ While the numbers of participants in a project

§ A project calls for team-work the members of

the 4/27/12team

may come from different

CHARECTERSTICS
§ A project is unique and no two projects are

similar, even though the plants set up are identical. The organizations, the infrastructure, the location and the people make the project unique. project throughout its life span. Some changes may not have any major impact, but some others may change the very nature of the project.

§ Change is a natural phenomenon with every

§ The happenings during the life cycle of a

project are not fully known at any stage. As time passes, the details are finalized 4/27/12 successively. For example, more details are

TYPES OF PROJECTS
New projects Expansion projects Modernization projects Diversification projects Other projects

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PROJECT IDENTIFICATION
PROJECT VIABILITY Project identification is concerned with the collection , compilation and analysis of economic data for the process of locating possible opportunities for investment and with the development of the characteristics of such opportunities. Opportunities are of three kind: 1) Additive 2) Complementary
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3) Break Through

PROJECT IDENTIFICATION
PROJECT VIABILITY Additive opportunities are those opportunities which enables a decision maker to better utilize the existing resources without in any way involving a change in the character of business. Complementary opportunities involve the introduction of new ideas and as such do lead to a certain amount of change in the existing structure. Break through opportunities involve fundamental changes in both the structure and character of business. 4/27/12

PROJECT IDENTIFICATION
PROJECT VIABILITY Every project has three dimensionsa) Input b) Output c) Cost & Benefits

Project do not emerge themselves. The input to set up a project can come from various sources. Once the idea is generated this has to be screened and evaluated in a preliminary fashion on the basis of internal 4/27/12 and external constraints before to put ant

PROJECT IDENTIFICATION
PROJECT VIABILITY INTERNAL CONSTRAINTS: It include the following
1) Entrepreneurs while implementing the

projects must analyze the internal capabilities or resources. management strategies.

2) Identification and analysis of Project 3) Business objectives.

finance, 4/27/12

4) Availability of internal resources such as

personnel, inventories and facilities.

PROJECT IDENTIFICATION
PROJECT VIABILITY EXTERNAL CONSTRAINTS: It include the following
1) External environment like nature, size,

location & extent of project.

2) Govt. Policies and regulations. 3) Financial institution like banks are the

important constraints while financing their projects.
4) Technology.
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TECHNIQUES OF PROJECT IDENTIFICATION
DESK RESEARCH It implies the collection and use of information from published sources like journals, magazines, reports etc. TECHNO ECONOMIC SURVEY It is an investigation conducted by a team of experts for identifying the industrial development potential of an area. Data and product identification may be obtained from the various sources. Govt. is providing grants and incentives for starting SSI and for its internationalization.
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SOURCES OF PROJECT IDEAS Analysis of industries’ performance
Analysis of inputs and outputs of industries Analysis of imports and exports Government’s

guideline to industries, published annually is available as a source of information to potential entrepreneurs / investors. The guidelines provide information on existing capacities for various items, estimated demand, scope for exports, etc.

Suggestions

of financial institutions and developmental agencies— State Financial Corporations, State Industrial Development 4/27/12 Corporations, and other Development

SOURCES OF PROJECT IDEAS
Survey of local resources Analysis of economic and social trends New technologies Emulating consumption patterns from abroad Restoring life to sick units Analysis of unsatisfied needs of consumers International and national trade fairs and

industry exhibitions

Chance factor
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Incentive for industries
With the objectives of rapid industrial growth as well as decentralization, the Government has introduced a number of incentives, which include the following:
 Incentive for export oriented units  Incentive for backward areas  Incentive for Small Scale Units

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Incentive for export oriented units
Export oriented units are allowed the following incentives:
A higher percentage of foreign equity is

generally permitted for units which have an Export commitment of over 60% of their production.
Liberal import facilities, depending on the

actual import content of the product and FOB value of the product are allowed. raw materials used for the manufacture of the export product are reimbursed.

Customs and central excise duties paid on

Raw materials are supplied at controlled

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Incentive for backward areas
In order to remove regional imbalance and develop areas lacking industrial activities the Govt. made a list of such areas considered as “backward” and provides incentives which includeGovt. subsidy-which should be retained in the

business i.e., not be treated as revenue income. with lower rate of interest and longer repayment time.

The financial institutions provide soft loans

There are various types of transport subsidies

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Incentive for Small Scale Units
Govt. encourages establishment of SSI units to facilitate promoters. The main criterion to consider an unit as a small scale one was the limit of total investments and this limit has been gradually increased to bring larger no. of units under the SSI with areas of operation exclusively reserved for such units. Chemical products (ii) Food products (iii) Electrical products (iv) Electronics products (v) 4/27/12 Mechanical products

PROJECT FORMULATION
Project formulation is the systematic development of a project idea for the eventual objectives of arriving at an investment decision. It has the built in mechanism of ringing the danger bell at the earliest possible stage of resource utilization. It involves a step by step investigation and development of project idea. Project formulation will also be a great assistance for obtaining necessary govt. clearance and in meeting the hurdles of procedural formalities. It will point out the 4/27/12 matters for which govt. sanctioned have to be

STEGES IN PROJECT FORMULATION A-Feasibility Analysis
It is the process of evaluating the future of project ideas within the limitations. Projects identified are normally analyzed in order to establish their viability from different angles such as technical, marketing, financial etc. It include three stages
1) Prefeasibility

study ( Plant capacity, Marketing, material, Location, Engineering, Manpower etc.) setup, structure etc)

2) Feasibility study( Investment, Organizational
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STAGES IN PROJECT FORMULATION

B- Techno-Economic Analysis

It is primarily concerned with the identification of project demand potential and choice of optimum technology. As the project may produce goods or services, it is important to know the market for such goods or services. Market analysis is also in-built in this step. Techno economic analysis gives the project a unique individuality and sets the stage for detailed design development.
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STAGES IN PROJECT FORMULATION

C- Project Design & Network Analysis

This step define individual activities which constitute the project and their inter relationship with each other. Sequence of events of project is presented. The detailed plan for each activity is prepared with the time allocation for each activity and presented in a network drawing. This also helps to identify various inputs required for process and an essential for analysis of financial and cost benefits profile of the project.
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STAGES IN PROJECT FORMULATION D- Input Analysis
This step assesses the input requirement during the construction of the project and also during the operation of the project. Into the previous step project was divided into several activities. Now it is better to see input requirement for each activity and sum it up to get the total required in qualitative and quantitative terms. Input required material, human resource etc.
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STAGES IN PROJECT FORMULATION E- Financial Analysis
This stage involves estimation of project cost, operational cost and fund requirement. It is very important to take caution at the time of preparing financial statement. The objective of financial analysis is to get effective and efficient knowledge of fund requirement and resources. Investment decision whether made for provision of goods or services involve commitment of resources in future.
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STAGES IN PROJECT FORMULATIONAnalysis F- Cost Benefit
The overall worth of a project is the main consideration here. While financial analysis will go to justify a project from profitability point of view, cost benefit analysis will consider from the viability point of view. Here we will not mean to direct cost but indirect cost also which are associated with the project. Cost may be associated with raw material, human resource, maintenance cost etc.
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STAGES IN PROJECT FORMULATION Analysis G- Pre-investment
The project proposal get a formal and final shape at this stage. All the results obtained in the above steps are consolidated and various conclusions arrived at to present a clear picture. At this stage, the project is presented in such a way that the project sponsoring body, project implementing body and the external consulting agencies are able to decide whether to accept the proposal or not.

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Project Evaluation is a step-by-step process of collecting, recording and organizing information about project results, including short-term outputs (immediate results of activities, or project deliverables), and immediate and longer-term project outcomes (changes in behaviour, practice or policy resulting from the project). It helps to know the following:- 
Response to demands for accountability; Demonstration

PROJECT EVALUATION

of effective, efficient and equitable use of financial and other resources; made;

Recognition of actual changes and progress Identification of success factors, need for
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PROJECT EVALUATION
Evaluating project results is helpful in providing answers to key questions like:  
What progress has been made? Were the desired outcomes achieved?  Why? Are there ways that project activities can be

refined to achieve better outcomes?
Do the project results justify the project

inputs? 

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PROJECT EVALUATION
Simple Rate of Return The SRR is a commonly used criterion of project evaluation. It basically expresses the average net profits (Net Cash Flows) generated each year by an investment as a percentage of investment over the investment’s expected life. It is as SRR = Y/I Where Y = the average annual net profit (after allowing depreciation) from the investment I = 4/27/12the initial investment

PROJECT EVALUATION
Pay Back Period (PBP) The Pay back period is the length of time required for an investment to pay itself out. It is computed as PBP = I/E Where I = the initial investment. E = the projected net cash flows per year from the investment. PBP = Pay Back Period expressed in number of years.
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PROJECT EVALUATION
Benefit Cost Ratio (BCR) It is the ratio of present worth of benefit stream to present worth of cost stream i.e. Sum of the present worth of benefit BCR = Sum of present worth of benefits/ Sum of present worth of cost. Mathematically, it can be shown as BCR = Σ Bn / (1 + i)/ Σ Cn / (1 + i)
Where, Bn = Benefit in each year 4/27/12

PROJECT EVALUATION
Net Present Value (NVP) Net present value is computed by finding the difference between the present worth of benefit stream less the present worth of cost stream. Or it is simply the present worth of the cash flow stream since it is a discounted cash flow measure of project worth along with internal rate of return. NPV = Present worth of Benefit Stream – Present Worth of Cost Stream.

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PROJECT EVALUATION
Internal Rate of Return (IRR) Internal Rate of Return (IRR) is that discount rate which just makes the net present value (NVP) of the cash flow equal zero. It is considered to be the most useful measure of project worth and used by almost all the institutions including World Bank in economic and financial analysis of the project. It represents the average earning power of the money used in the project over the project life. It is also sometimes called yield of the investment.
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Σ (Bn - Cn ) / (1 + i)= 0 i.e. NVP = 0

PROJECT FINANCING
After formulating and evaluating the project, the next step is to draw out a financial plan to meet project costs. The financial plans should deal with two important aspects:1) Determination of total amount of capital

required for taking up the project.
2) Deciding about the composition of capital or

financing mix.

Any project new or existing one needs funds for two important purposes. They are
1) Fixed Capital 4/27/12

PROJECT FINANCING
FIXED CAPITAL Funds required to acquire the fixed assets are termed as fixed capital. Any error in the fixed capital estimation will have long range adverse effect on the financial conditions of the enterprise and also its profitability. Wrong estimation of fixed capital may lead to over and under capitalization. Fixed capital requirement vary from business to business are influence by the following factors:1) Nature of Business 2) Size of Business 3) Technology 4/27/12

PROJECT FINANCING
SOURCES OF FIXED CAPITAL OR LONG TERM FINANCE 1) Issue of corporate securities ( Equity share or Preference share) 2) Term Loans ( Loans from banks and financial institutions for 10-25 years) 3)Retained Earnings ( saving in business) 4) Deferred Credit 5) Govt. Subsidy 6) Unsecured loans & Deposits ( By 4/27/12 promoters)

PROJECT FINANCING
WORKING CAPITAL It is the amount of capital which is required for day to day operations of business. In other words it is defined as all short term assets used in daily operations. They consist primarily cash, marketable securities, account receivable and inventory. The components of working capital are:1) Raw material 2) Cash in hand 3) Finish goods 4) Cash in bank
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PROJECT FINANCING
SOURSES OF WORKING CAPITAL OR SHORT TERM FINANCE
1) Accounts Payable. They are created when

the firm purchase raw material, supplies goods for resale on credit terms on open account. They are interest free and security free.
2) Accruals. They are short term liabilities that

are arise when securities are received but payment has not yet been made.
3) Commercial

Paper. These consist of promissory notes with maturity of 3 to 270 days. These are issues by the company on 4/27/12 high rates and other company purchase it

4) Private Loan: A short term unsecured loan may be obtained from a wealthy shareholder, or a major supplier, or other party interested in assisting the firm through a short term difficulty. 5) Bank Credit: Bank credit is the major source of finance for working capital. Banks offer both secured as well as unsecured loans to business firms such as cash credit, overdrafts, loans and advance and purchase and discounting of bills.

PROJECT FINANCING

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PROJECT FINANCING
6) Public Deposits: Another source of short term finance are unsecured public deposits. A company can borrow only up to 25 per cent of its share capital and free reserves. The maturity period may varies from 6 months to 5 years. 7)Three Month Deposits: These deposits are more popular in practice. They are taken up by the borrower to tide over short term cash inadequacy. The rate of interest is about 16 percent per annum.

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PROJECT FINANCING
LEASE FINANCE It is one of the most important source of industrial finance in recent times. It is most important source of capital for project taking up expansion, modernization and expansion. Lease finance can be said to be a contract between lessor and lessee whereby the former acquires the equipment, goods, plants as required and specified by the lessee and passes an the goods to the lessee for use for a specific place. The lessee is considered promise to pay the lessor a specific sum in a specific mode on specific interval and at a specified place.
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PROJECT FINANCING
Types of lease Arrangement
1) Financial Lease 2) Operating lease or service lease 3) Sales Lease 4) Service Lease

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PROJECT FINANCING
Sources of funds for lease financing
1) Banks 2) Financial Institution 3) Financial Service Companies 4) Insurance Companies.

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PROJECT FINANCING
Financial Institution
1) IFCI 2) IDBI 3) ICICI BANK 4) SIDBI 5) SFCs 6) SIDCs

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PROJECT REPORT
A project report must prepare before launching a venture . Once the feasibility study is over and entrepreneur is satisfied the next step of drafting project report. The project report has the following features:1) It is a business plan 2) It outline the desired goals 3) It describes all necessary inputs to the enterprise. 4) It explains the mode of utilization of resources. 5) It 4/27/12 details the strategies for execution of the

PROJECT REPORT
Objectives of Project Report
1) To identify the requirements of inputs. 2) To assess the chance of success before

actual commencement of business.
3) To find out the critical components of project

idea.

4) To obtained the opinion of expert on various

fields.
5) To enable the firm to get license .
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The project report must spell out in terms the various input for the project viz.
1) Land and factory size 2) Raw Materials 3) Labour 4) Capital 5) Organization

PROJECT REPORT

The capital investment needed, expected return, market situation etc all these more should be clearly indicated and discussed in 4/27/12 project report. the

PROJECT REPORT
Today, without financial aid from banks and other institution it is difficult to start a new business. the project report should besides details of the project, contain details of the financial assistance required with reference to the mode and period of payment. Banks would like to know the technical economic feasibility of the project. It is in the interest of the entrepreneur to give a perfect blue print containing all essential details about the project to the bank and financial institutions.
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PROJECT REPORT
The need of project does not arise only for banks and financial institutions but for registration certificates and other agencies like district industries centre. The project report should be at a glance a self explanatory document capable of evoking positive response. It should contain the following information about the project. 1) Name of the industry 2) Address of the unit 3) Product to be manufactured
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4) Principle raw material required

PROJECT REPORT
6) Power requirement 7) Employment 8) Cost of project a) Land and building b) Plant and machinery c) Working capital 9) Turnover 10) Expected profit 11) Break even point 12) Help expected
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PROJECT REPORT
Project report should throw light on the following aspect: a) The demand in local market b) The demand in national market c) The demand in international market It is necessary to give sufficient quantitative data covering the above aspect, to evoke easy response from banks. The report should bring out the gap between the present demand and future demand for the product in the market and its present production in its expected future 4/27/12

PROJECT REPORT
It should spell out the extent of competition and its nature, marketing strategy proposed etc. It should also discuss the export prospect for the giving the name of the countries to which these could be exported and the estimates of the requirement their in. Project report should indicate the organizational pattern proposed for unit such as proprietary, partnership, private limited etc. The biodata of firm and director, their name, age, qualification and their experiences.
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PROJECT REPORT
The project report should also give the registration number if it is registered by district centre and enclosed an attested copy of the registration certificate. Project report should be made on the following aspect:Product detail description of the product proposed to be manufactured. Standard specification, usefulness or utility of product, end users and their approximate number should be given.

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PROJECT REPORT
Manufacturing Process It is necessary to give brief description of the manufacturing methods. Right from the stage of the raw material to that of the product, production envisaged in the first year and next five years or so, whether any phased increased in planned. These and other procedures proposed to be adopted. The following must be indicated:1) Parts or components to be manufactured 2) Maintenance method 3) Layout 4/27/12 of machineries

PROJECT REPORT
Location A brief description of the proposed location of factory, the locational advantage , rent, infrastructural facilities, communication facilities, quick transport, availability of labour, government subsidy is to be given. Which of these locational advantages has weighed with the entrepreneurship in the site location should be indicated.

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PROJECT REPORT
Plant & Machinery It is necessary to give brief descriptions about plant and its machineries required for manufacturing activities with the detail specification such as quality, cost and availability. The enterprise may like to get machine on hire purchase basic, in easy installments from organization like NSIC. Some machines may have to be imported from other countries. All these facts and details should be mentioned in the project report.
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PROJECT REPORT
Testing Equipments

A list of testing equipment with detailed specification, purpose, usefulness, cost, nature, name and address of suppliers to be given in project report. It is also necessary to state clearly why these equipments are considered necessary for the unit.

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DEMAND ANALYSIS
Demand analysis deal with two broad concept that what is the likely aggregate demand for product/service and what share of the market will the proposed project enjoy. After gathering information from various aspect of the market and demand from primary and secondary data, an attempt may be made to estimate future demand. A wide range of forecasting methods are available for the same.

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The qualitative (or judgmental) approach can be useful in formulating short-term forecasts and can also supplement the projections based on the use of any of the quantitative methods. Four of the better-known qualitative forecasting methods are executive opinions, the Delphi method, sales-force polling, and consumer surveys

Qualitative Forecasting Methods

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Executive Opinion
The subjective views of executives or experts from sales, production, finance, purchasing, and administration are averaged to generate a forecast about future sales. Usually this method is used in conjunction with some quantitative method, such as trend extrapolation. The management team modifies the resulting forecast, based on their expectations.

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Delphi Technique
This is a group technique in which a panel of experts is questioned individually about their perceptions of future events. The experts do not meet as a group, in order to reduce the possibility that consensus is reached because of dominant personality factors. Instead, the forecasts and accompanying arguments are summarized by an outside party and returned to the experts along with further questions. This continues until a consensus is reached.

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  Some companies use as a forecast source salespeople who have continual contacts with customers. They believe that the salespeople who are closest to the ultimate customers may have significant insights regarding the state of the future market. Forecasts based on sales force polling may be averaged to develop a future forecast Or they may be used to modify other quantitative and/or qualitative forecasts that have been generated internally in the company.

Sales Force Polling

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Some companies conduct their own market surveys regarding specific consumer purchases. Surveys may consist of telephone contacts, personal interviews, or questionnaires as a means of obtaining data. Extensive statistical analysis usually is applied to survey results in order to test hypotheses regarding consumer behavior.

Consumer Surveys

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QUANTITATIVE FORECASTING METHODS Quantitative forecasting methods are used when
historical data on variables of interest are available. These methods are based on an analysis of historical data concerning the time series of the specific variable of interest and possibly other related time series. There are two major categories of quantitative forecasting methods. The first type uses the past trend of a particular variable to base the future forecast of the variable. As this category of forecasting methods simply uses time series on past data of the variable that is being forecasted, these techniques are called time series methods.

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QUANTITATIVE FORECASTING METHODS
The second category of quantitative forecasting techniques also uses historical data. But in forecasting future values of a variable, the forecaster examines the cause-and-effect relationships of the variable with other relevant variables such as the level of consumer confidence, changes in consumers' disposable incomes, the interest rate at which consumers can finance their spending through borrowing, and the state of the economy represented by such variables as the unemployment rate.

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TIME SERIES METHODS
Time series are comprised of four separate components: trend component, cyclical component, seasonal component, and irregular component. These four components are viewed as providing specific values for the time series when combined. The measurements may be taken every hour, day, week, month, or year, or at any other regular (or irregular) interval. While most time series data generally display some random fluctuations, the time series may still show gradual shifts to relatively higher or lower values over an extended period.
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TIME SERIES METHODS
The gradual shifting of the time series is often referred to by professional forecasters as the trend in the time series. A trend emerges due to one or more long-term factors, such as changes in population size, changes in the demographic characteristics of population, and changes in tastes and preferences of consumers.

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Smoothing methods are appropriate when a time series displays no significant effects of trend, cyclical, or seasonal components (often called a stable time series). In such a case, the goal is to smooth out the irregular component of the time series by using an averaging process. Once the time series is smoothed, it is used to generate forecasts.

TIME SERIES FORECASTING USING SMOOTHING METHODS.

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TIME SERIES FORECASTING USING SMOOTHING METHODS. Suppose a forecaster wants to generate three-period moving averages. The forecaster would take the first three observations of the time series and calculate the average. Then, the forecaster would drop the first observation and calculate the average of the next three observations. This process would continue until three-period averages are calculated based on the data available from the entire time series. The term "moving" refers to the way averages are calculated—the forecaster moves up or down the time series to pick observations to 4/27/12 calculate an average of a fixed number of

trend of a time series of data to forecast. assume that the past trend will continue in the future, future values of the time series (forecasts) can be inferred from the straight line based on the past data. One should remember that the forecasts based on this method should also be judged on the basis of a measure of forecast errors. One can continue to assume that the forecaster uses the mean squares error discussed earlier.
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TIME SERIES FORECASTING USING TREND PROJECTION This method uses the underlying long-term

TIME SERIES FORECASTING USING TREND AND SEASONAL COMPONENTS. This method is a variant of the trend
projection method, making use of the seasonal component of a time series in addition to the trend component. This method removes the seasonal effect or the seasonal component from the time series. This step is often referred to as deseasonalizing the time series. Once a time series has been de-seasonalized it will have only a trend component. The trend projection method can then be employed to identify a straight line trend that represents 4/27/12 the time series data well.

CAUSAL METHODS
CHAIN RATIO METHOD The potential demand of a product may be estimated by applying a series of factors to a measure of aggregate demand. Its reliability is critically dependent on the ratios and rates of uses of product. For Example Total Amount of Coffee sales 174.5 Million units Proportion of coffee used at home 0.835 Millions Proportion of instant coffee 0.400 Million units
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Coffee used at business 136.5 Millions

the basis of elasticity of demand. 1) Income elasticity of demand 2) Price elasticity of demand

CONSUMPTION LEVEL METHOD This method estimates consumption level on
Elasticity of demand may be two type

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Suitable for estimating the demand for intermediate products. It also referred to as the consumption coefficient method, involves the following steps:
1) Identify the possible uses of the product. 2) Define the consumption coefficient of the

END USE METHOD

product.
3) Project the out put levels. 4) Derive the demand for the product.

For Ex. Projected output in year X is 10000 units
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Projected demand for the year X is

LEADING INDICATOR METHOD
Leading indicator are variables which change ahead of other variables. Change in leading indicators may be used to predict the change in lagging variables. For ex. Change in the level of urbanization may be used to predict the change in demand for air conditions

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COST BENEFIT ANALYSIS
Cost–benefit analysis (CBA), sometimes called benefit–cost analysis (BCA), is an economic decision-making approach, used particularly in government and business. CBA is used in the assessment of whether a proposed project, programme or policy is worth doing, or to choose between several alternative ones. It involves comparing the total expected costs of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much.

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COST BENEFIT ANALYSIS
In CBA, benefits and costs are expressed in money terms, and are adjusted for the time value of money, so that all flows of benefits and flows of project costs over time (which tend to occur at different points in time) are expressed on a common basis in terms of their "present value."
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Cost–benefit analysis is often used by governments and others, e.g. businesses, to evaluate the desirability of a given intervention. It is an analysis of the cost effectiveness of different alternatives in order to see whether the benefits outweigh the costs (i.e. whether it is worth intervening at all), and by how much (i.e. which intervention to choose). The aim is to gauge the efficiency of the interventions relative to each other 4/27/12

COST BENEFIT ANALYSIS

COST BENEFIT ANALYSIS
Risk associated with the outcome of projects is also usually taken into account using probability theory. This can be factored into the discount rate (to have uncertainty increasing over time), but is usually considered separately. Particular consideration is often given to risk aversion - that is, people usually consider a loss to have a larger impact than an equal gain, so a simple expected return may not take into account the detrimental effect of uncertainty. Uncertainty in the CBA parameters (as opposed to risk of project failure etc.) is often evaluated using a sensitivity analysis, which shows how the results are affected by changes in the 4/27/12 parameters. The accuracy of the outcome of a

PRINCIPLES OF COST BENEFIT ANALYSIS is an economic Appraisal of a project: It

technique for project appraisal, widely used in business as well as government spending projects (for example should a business invest in a new information system) externalities into the equation: It can, if required, include wider social/environmental impacts as well as ‘private’ economic costs and benefits so that externalities are incorporated into the decision process. In this way, CBA can be used to estimate the social welfare effects of an investment

Incorporates

4/27/12 Time matters! CBA can take account of

CBA

to big public sector projects such as new motorways, by-passes, dams, tunnels, bridges, flood relief schemes and new power stations. The basic principles of CBA can be applied to many other projects or programmes. For example, -public health programmes (e.g. the mass immunization of children using new drugs), an investment in a new rail safety systems, or opening a new railway line or the costs and benefits of the New Deal charges programme designed to reduce long-term unemployment. Cost benefit analysis was also used during the recent inquiry 4/27/12

Uses ofbeen applied COBA has traditionally

Stages in the Cost Benefit Analysis social costs &  Stage 1(a) Calculation of
social benefits. This calculation of:
and benefits)

would

include

 Tangible Benefits and Costs (i.e. direct costs Intangible Benefits and Costs (i.e. indirect

costs and benefits)

Stage

1(b) - Sensitivity analysis of events occurring – this relates to an important question - If you estimate that a possible benefit (or cost) is £x million, how likely is that outcome? If you are 4/27/12 reasonably sure that a benefit or cost will

Stages in the Cost Benefit Analysis
 Stage

3: - Comparing the costs and benefits to determine the net social rate of return different projects – the government may have limited funds at its disposal and therefore faces a choice about which projects should be given the go-ahead

Stage 4: - Comparing net rate of return from

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APPROCHES TO COST BENEFIT ANALYSIS
UNIDO APPROACH
1) Calculate financial profitability of project. 2) Obtain net benefit from project. 3) Impact on project on income 4) Impact of project on saving & investment. 5) Difference in social value & Economic Value.

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1) Calculate accounting price 3) Analysis

APPROCHES TO COST BENEFIT ANALYSIS

2) Consider the factor of equity

CBA BY FINANCIAL INSTITUTION IDBI ICICI AXIS BANK
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SIDBI

NET PRESENT VALUE
The net present value of a project is the sum of the present value of all cash flows-positive as well as negative- that are expected to occur over the life of the project. The general formula for NPV is: NPV = Sigma(n) (t) 2) R is discount rate
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C(T)

- Initial Investment

( 1+r)

1) C (T) is cash flow at the end of year 3) N life of a project

NET PRESENT VALUE
Year 0 1 Cash Flow 1000000 500000 _ 1000000

NPV= 500000 1.10

NPV = 454545-1000000 = 545455

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discount rate which makes its NPV equal to zero. It is the discount rate which equates the present value of future cash flow with initial investment. NPV = Sigma(n) (t) C(T) ( 1+r)

INTERNAL RATE OF RETURN The internal rate of return of a project is the

1) C (T) is cash flow at the end of year 2) R is Internal rate of return 3) N life of a project
4/27/12 is 4) t

cost of capital

INTERNAL RATE OF RETURN Year Cash Flow 0 100000 1 30000 2 30000 3 40000 4 45000
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INTERNAL RATE OF RETURN
Decision Rules for IRR
1) Accept: If the IRR is greater then the cost of

capital. capital.

2) Reject: If the IRR is less then the cost of

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