Project Appraisal Method

7/27/2019 Project Appraisal Method

1/27

Evaluation ofGMR

Hyderabad

InternationalAirport Limited

(GHIAL)

Presented By:-

Mihir Nisar

Chintan Nagar

Jinay Sheth

Harshil JasaniKiran Jadhav

Mayank Saxsena


2/27

Hyderabad International

Airport LimitedO GMR-Construction on Highways, Urban

Infrastructure, Agri-Business.

O In 1999; GMR entered into the Airport

Sector.

O Won a competitive bidding process by

the Govt. of Andhra Pradesh, it won thebid to construct GHIAL.


3/27


Airport LimitedOStarted as a Public-Private

PartnershipO 63% Hyderabad International Airport

O 11% Malaysia Airports Holding

Berhad

O 13% Government of Andhra Pradesh

O 13% Airports Authority Of India


4/27


Airport LimitedO Initial license period of 30 years with an

option to extend it for next 30 years.

O

GMR designed GHAIL to meetinternational standards.

O Designed for 7 million passengers perannum.

O Increased Capacity:-O 12 million passenger per annum

O 1 Lakh tones of cargo per annum


5/27


Airport LimitedO Debt-Equity ratio:- 4:1

O Funded by :-Abu Dhabi commercial bank,Andhra Bank and Vijaya Bank.

O Project Life:- 30 Years

O Project Cost:- 24,780 million


6/27


7/27

Time required to recover original investment

Simple & widely used method

Formula:-

Pay back period =

original cost of investment

annual cash inflows

PAY BACK PERIOD


8/27

Time required to recover original investment

Simple & widely used method

Formula:-

Pay back period= 1 1 +(;9.)

5112

= 11.7865

PAY BACK PERIOD


9/27

Merits:-

1. Best when project have shorter period & less

cost.

2. Easy to operate & simple to understand.

3. Helps entrepreneur to evaluate in quick

return funds.

PAY BACK PERIOD


10/27

Demerits:-

1. More on liquidity then profitability.

2. Not cover the earning beyond pay back

period.

3. Suitable for small project.

4. Ignores cost of capital.

PAY BACK PERIOD


11/27

Better than pay back period method

Considers earnings of full project during its

economic time Also known as return on investment (ROI)

Formula:-

Return on investment =average earning after tax

average investment

AVERAGE RATE OF

RETURNS (ARR)


12/27

Better than pay back period method

Considers earnings of full project during its

economic time Also known as return on investment (ROI)

Formula:-

Return on investment =1 5 6 124780 X 100

= -6.303%

AVERAGE RATE OF

RETURNS (ARR)


13/27

Merits:-

1. Simple to calculate & easy to understand

2. Consider earning of full life

3. Helps to comparing with other projects

4. Consider net earnings after depreciation & taxes

AVERAGE RATE OF

RETURNS (ARR)


14/27

Demerits:-

1. Ignores time value of money

2. More focus on profit & loss

3. Not consider re-investment of profit over years

4. Not compare between size of investment

AVERAGE RATE OF

RETURNS (ARR)


15/27

Consider time value of money

It compare rupee value of today & after a year

Calculate by present value

Formula:-

Where, S= cash flow

N= no. Of years

R= interest rate

NET PRESENT VALUE

PRESENT VALUE =

(:)


16/27

Consider time value of money

It compare rupee value of today & after a year

Calculate by present value

Formula:-

NET PRESENT VALUE

PRESENT VALUE = 24780 + 2863

(:.9)

+ 3725

(:.9) +5120

(:.9)

= 5222


17/27

NET PRESENT VALUE

Merits:-

1. Consider time value of money

2. Scientific method

3. Covers whole project

4. Future flow in todays value

5. Objective of maximum profitability


18/27

NET PRESENT VALUE

Demerits:-

1. Difficult to calculate

2. Biased towards short run projects

3. Not consider non-financial activity like

marketability


19/27

Ratio of present value of inflow & outflow

Profitability ratio of project more than 1 is to

be selected

Formula:-

Profitability index =

PROFITABILITY INDEX


20/27

Ratio of present value of inflow & outflow

Profitability ratio of project more than 1 is to

be selected

Formula:-

Profitability index =

=1.21

PROFITABILITY INDEX


21/27

PROFITABILITY INDEX

Merits:-

1. Conceptually sound

2. Consider time value of money

3. Facilitates ranking of project


22/27

PROFITABILITY INDEX

Demerits:-

1. Computation process is complex

2. Different interpretation


23/27

Use time value of money

NPV reduce to zero

IRR= 10.49% (with interpolation)(10% =1554, 11%= -1562)

INTERNAL RATE OF

RETURNS (IRR)


24/27

INTERNAL RATE OF

RETURNS (IRR)

Merits:-

1. Recognized time value of money

2. Consider cash flow for whole life

3. Takes into account true value of money

4. Objective of maximizing owners welfare


25/27

INTERNAL RATE OF

RETURNS (IRR)

Demerits:-

1. Difficult to understand & use

2. Decision making is depends on the future

financial projection


26/27

COMPARISION

Payback

PeriodDiscounted

Payback

Period ARR NPVProfitability

Index IRR11.78 Years 21.76 Years -6.30%5222.20Millions 1.210743 10.49%Accept Accept Reject Accept Accept Accept


27/27

conclusion

This is profit making project

We Should Accept this project

Documents

Project Appraisal Method