Assignment # 1
Subject: Financial Management
Submitted By:
H.M. Shakir Abdullah
(27-M.COM-5A)
Submitted To:
Prof. Noman Nazir sb
Feasibility Report
What is feasibility study?
A feasibility study is an analysis of the possibility of an idea through a well-organized
and documented process of thinking through the idea from its logical beginning to its
logical end.
Feasibility study is carried out in order to assess the viability of a new project
It is primary and most important thing in development of a project
Reasons to Do a Study
Gives focus to the project.
Narrows the business alternatives.
Identifies new opportunities.
Identifies reasons not to proceed.
Provides valuable information for go/no go decision.
Increases probability of business success by identifying weaknesses early.
Provides documentation that the idea was thoroughly investigated.
Types of feasibility
Operational feasibility
Useful for identifying operational problems to be solved, and their urgency
The PIECES framework
P-Performance, I-Information, E-economy, C-control
E-efficiency, I-Information, S-services
Market Feasibility
Determine facility needs.
Suitability of production technology.
Availability and suitable of site.
Raw materials.
Other inputs
Financial/Economic Feasibility
Estimate the total capital requirements.
Estimate equity and credit needs.
Budget expected costs and returns
Organizational/Managerial Feasibility
Business Structure
Business Founders
Environmental feasibility
Environmental impact and their assessment
Legal feasibility
Is the project legally feasible?
Legal requirements.
Feasibility report
A feasibility report is the results of a feasibility study. This report details whether or not a project
should be undertaken and the reasons for that decision.
Report Content
Introduction/Executive Summary
Background
outline of project
Methodology/method of analysis
Overview of alternatives
Conclusion
Recommendation
LEATHER GOODS MANUFACTURING UNIT (WALLETS)
Executive Summary
Low Investment
Easy Availability Of Quality Hides And Skins
High Craftsmanship
Cheap Availability Of Skilled Labor Force Are S
Total Investment Of About Rs. 2.17 Million
Sum Of Rs.1.08 Million As Initial Working Capital.
Capital Investment Of Rs.1.09 Million
Project Will Generate Direct Employment Opportunity For 16 Persons
Higher Return On Investment
Introduction
The leather goods made of many animals. e.g. Sheep, buffalos, cow, goat, crocodile etc
leather is light weight
Leather goods mostly export from Karachi,
Lahore and Sialkot
Leather is a durable and flexible material
Brief Description of Project & Product
Potent Opportunity To Establish Their Business
Easy And Sustained Access To High Quality Raw
Skilled Labor
Primarily Focus On Exports Catering The International Leather Markets
3 stitching machines with a capacity of manufacturing 300 wallets per 8 hours shift
labor required16
Production Process Flow
Potential Target Markets
Major Leather Product Brands In Europe And USA
Germany
USA
United Kingdom,
Turkey
Japan
France
UAE
Geographical Potential for Investment
Lahore, Karachi And Sialkot
Availability Of Skilled Labor
Other Support Infrastructure
Raw Material
Installed & Operational Capacities
3 Stitching Machines With A Capacity Of Manufacturing 300 Wallets Per 8 Hours Shift
The Total Labor Required 16
Total Number Of Wallets Produced In Year One 49,500
Project Cost Summary
Project Economics
Leather wallets per year production capacity of the project is 90,000
Project Cost
Space Requirement
Machinery and Equipment
Office Equipment
Raw Material Requirements
Human Resource Requirement
Replacement of Asset
Apples academy has an opportunity to replace its old asset against new asset. Apples academy
has an old model photocopy machine (manual system). The old photocopy machine does have
ability to fulfill their students requirement. Because old photocopy machine take time because of
it manual system also increase its repair charges. The old machine cost was Rs.65, 000 and it has
useful life was 3 years. It was depreciate on straight-line method and completed their life. The
new machine is acquired at the cost Rs.3, 50,000 and it will be depreciable on straight-line
method. Its useful life will be 5 years. Its capital expenditure plus installation is Rs.2, 000 it
has decrease operating expenses Rs.4, 000 in every year up to its useful life. And increase
revenue Rs.25, 000 due to automatic system and efficiency of machine. A sale of old asset
tax is charge on 20% on profit. New photocopy machine also increase its net working capital
requirement as Rs.20, 000. Its residual value is Rs.25, 000. Sale price of old asset is Rs.3,
000.
Initial cash flow/cost of asset
Description
Amount Rs.
Cost of asset
3,50,000
Capitalized expenditure
2,000
Cost of asset
3,52,000
Add
Increase in net working capital
25,000
Less
Proceeds sales of old asset
(3,000)
Net investment before tax
3,74,000
Tax on gain on sales of old asset
600
Net investment of asset
3,74,600
Add
Add
Annual operating cash flow
Description
Add
Less
Add
Add
Amount Rs.
Increase in revenue
25,000
Decrease in operating expenses
4,000
Increase in savings
29,000
Depreciation
65,000
Earnings before tax
(36,000)
Tax saving on revenue
7,200
Earnings after tax
(28,800)
Depreciation
65,000
Operating cash flow
36,200
Note
If revenue and depreciation is same in every year then operating cash flow will
be same in every year.
