* Investment Project
* Train project. Market Study
* Types of projects
* Life Cycle projects
Any investment project generates effects or impacts of various kinds, direct, indirect and intangible external. The latter far exceed the possibilities of monetary measurement and still not consider it harmful and thus represent the moods and final satisfaction of the beneficiary population or injured.
Economic valuation may be elements of a community perceived prejudice or benefit, but at the time of its weight in monetary units, it is impossible or very difficult to materialize. In today’s economy are attempts to reach approximate measurement methods to address the qualitative, but always subject to a subjective assessment of reality.
Failure to deal with the subjective or intangible present in certain impacts of an investment may drift away from the best practice recommendation to decide, so it is appropriate to try some methods in qualitative insert cuantivatitativo.
INVESTMENT PROJECT (conceptualization)
It is a technical and economic proposal for action to resolve a need by using a set of resources, which may be human, material and technology among others. It is a written document formed by a series of studies that allow the entrepreneur who has the idea and the institutions that support it know whether the idea is viable, can be performed and will gain.
Aims to leverage resources to improve the living conditions of a community, may be short, medium or long term. It extends from the intention or thought of playing anything until the end or start normal operation.
Responds to a decision about resource use with any or some of the objectives, to increase, maintain or improve the production of goods or services.
A project consists of four main studies.
The goal here is to estimate sales. The first is to define the product or service: What is it, it good for, What is your “unit” parts, liters, kilos, etc.., Then they should see what the demand for this product, who purchase and how much is bought in the city or area he is the “market.”
Once determined, you should consider the bid, ie competition Where do you get that product market now, Many stores or shops there, Is imported from other places, You must make an estimate of what is offered. Supply and demand will be defined as what is offered, and at what price, this is the sales budget. A budget is a projection into the future.
The objective here is to design and produce what is sold. If you choose an idea is because it is known or can investigate how to make a product, or because some activity like a special way. The technical study is defined:
* Where to locate the company or project facilities.
* Where to get materials or raw materials.
* That use machines and processes.
* That staff is required to carry out this project.
In this study, we describe that process to be used, and how much all this cost, which is needed to produce and sell. These are the investment budgets and expenditures.
THE FINANCIAL REVIEW.
Here is shown the important thing: The idea is profitable. To know there are three budgets: sales, investment spending. That came from previous studies. This will decide if the project is viable, or if it needs changes, such as whether to sell more, buy more expensive machines or spend less.
Remember that any “change” in the budget must be realistic and achievable, if the gain can not be satisfactory, and considering all options changes and then the project is “not viable” and must find another investment idea.
Thus, after modifications and changes, and once assured that the idea is viable, then it happened the last study.
THE STUDY OF ORGANIZATION.
This study is to define as will the company, or changes must be made if the company is already formed.
* What tax is it more convenient.
* What steps need to enlist the project.
* How to organize the company when the project is operating.
TYPE OF PROJECT.
PRIVATE INVESTMENT PROJECT.
Is performed by a particular employer to meet their objectives. The expected benefits of the project are the results of the value of the sale of products (goods or services) that will generate the project.
PUBLIC INVESTMENT PROJECT OR SOCIAL.
Seeks to meet social objectives of government goals through alternative or used by support. The evolutionary terms will be referred to the term of the targets under the criteria of time or scope population.
LIFE OF THE PROJECT.
It’s the preliminary to the execution of a project that allows, by conducting studies to demonstrate the benefits of technical, economic, financial, institutional and social aspects of this, if carried out. In the preparation stage and evaluation of a project or pre-investment analysis stage, you should conduct market research, technical, economic and financial. Should be addressed successively in order, determined by the quantity and quality of information available, the depth of analysis, and the degree of confidence in these studies.
Stages in pre-investment stage.
The selection of the best investment projects, ie higher relative goodness and to which resources should be allocated preferentially available provide a phased process.
It is thus understood as follows:
* Generation and analysis of the project idea.
* Study the profile level.
* Pre-feasibility study.
* Feasibility study.
In this way by successive approximations, defining the problem to be solved. At each stage of increasing depth studies are required, in order to gain certainty as to the desirability of the project.
Another advantage of phased study is to allow the study itself, be used a minimum of resources. This is because, if a stage is reached the conclusion that the project is technically and economically viable, it is pointless to continue with the following. Thus avoiding unnecessary costs
A description of each of the phases.
GENERATION AND ANALYSIS OF THE PROJECT IDEA.
The generation of an investment project idea arises from unmet needs, policy, of the existence of other projects or ongoing studies, supplementation is required by actions in different fields of institutional action policies, inventory natural resources.
In the approach and analysis of the problem must define the need is to fulfill or is it resolved, to assess its magnitude and establish those deficiencies affect (groups, sectors, regions or entire country). You must indicate the criteria that have identified the existence of the problem, verifying the reliability and relevance of the information used. Emerge from this analysis the precise specification of the good or service you want is to give.
Also at this stage, the task of identifying the basic alternatives for solving the problem, according to predetermined objectives. Regarding the project idea defined in the first instance, it is possible to take certain actions, such as leave, postponing his study, or further east.
PROFILE STUDY OF THE LEVEL.
In this phase for study all the records that allow the formation of opinion on the appropriateness and technical-economic feasibility of carrying out the project idea. The evaluation should identify and explain the benefits and costs of the project which is required prior to define precisely the situation “without project”, ie you predict will happen in evaluation horizon if the project is implemented.
The profile allows, first, analyze the technical feasibility of the proposed alternatives, discarding those that are not technically feasible. In this phase is also evaluating technically feasible alternatives. In projects involving small investments and whose profile shows the desirability of its implementation, it should move directly to the preliminary engineering design or detail.
In addition the study of the profile can take any of the following decisions:
* To deepen the study of aspects of the project as required. To facilitate this deepening should state clearly the terms of reference.
* Run the project with the information available at this stage or not, provided that it has reached an acceptable degree of certainty about the convenience of materialize.
* Abandon the idea if the profile is unfavorable to it.
* Delaying the implementation of the project.
In this phase are discussed in detail the alternatives considered more convenient, which were identified in general in the previous phase. To prepare the project feasibility report should be discussed in detail the issues identified in the profile phase, especially those that affect the feasibility and profitability of the alternatives. These issues stand out:
* The market.
* The size and location.
* The conditions of institutional and legal.
First be formulated in purely technical analysis, and then continue with the economic. Both analyzers can qualify as alternatives or options of projects and as a result, choosing whichever is more convenient in relation to existing conditions.
This last phase of successive approximations started in the pre-investment, are embroidered the same points of the feasibility. In addition to further analysis to study the variables that affect the project, minimizing the expected variation of costs and benefits. For it is paramount that the participation of specialists, as well as having reliable information.
On the basis of the recommendations in the feasibility report, and have been included in the terms and reference for the feasibility study should define the project’s technical aspects such as location, size, technology, implementation schedule and date commissioning. The feasibility study will be directed to the detailed and precise examination of the alternative that was considered viable in the previous stage. You must also refine those aspects and variables that can improve the project, according to their objectives as being sociable or profitability.
Once the project has been characterized and defined must be optimized. For optimization means the inclusion of all aspects of physical work, the investment outlay program, the organization to create, launch and operation of the project. The analyze of the organization to create for project implementation must consider the size of the physical work, entrepreneurship and financial investor, technical and administrative operation requires the sources and deadlines for funding.
With the feasibility stage finishes the process of successive approximations in the formulation and preparation of projects, a process which has significant importance refinement sequence and analysis of information. The feasibility report is the culmination of the development of a project, and is the basis of the decision on implementation. Serves those promoting the project, financial institutions, those responsible for implementing global economic, regional and sectoral levels.
STAGES OF INVESTMENT
This stage of a project begins with the final studies and ends with the provision in place. Its phases are:
FUNDING: This refers to all actions, proceedings and other actions to obtain the necessary funds to finance investment in the form or proportion defined in the study of pre-investment concerned. Usually refers to loans.
STUDIO FINAL: Also known engineering firm, is the set of detailed studies for the construction, installation and commissioning. Generally refers to engineering design studies that are specified in the plans of structures, electrical plans, plumbing plans, etc.., Documents prepared by architects and civil engineers, electrical and sanitary, which are required to license construction. These studies are conducted after the pre-investment due to their high cost and that could be useless if the study comes feasible, another is to be as much as possible at the time of execution. The final study phase includes not only technical aspects of the project but also financial, legal and administrative.
DELIVERY AND INSTALLATION: Includes all the activities for the implementation of the new production such as land purchase, if physical construction, purchase and installation of machinery and equipment, other facilities, staffing, etc. This step involves implementing or carrying out the project, which even before it, were only theoretical.
STARTING UP: Also called “Step Test” consists of a set of activities needed to identify gaps, flaws and imperfections of the installation of the installation of the production infrastructure in order to make the necessary corrections and put ” point “the company, for the start of normal production.
STAGES OF OPERATION.
It is the stage when the project enters production, starting the flow of revenues from the sale of goods or services results of operations, which should be sufficient to cover the costs and expenses necessarily incurred. This stage begins when the company goes into production until the end of the life of the project, a period in which the analysis will evaluate the results.
The determination of the life of a project can be determined by the period of obsolescence of most important asset (eg machinery and processing equipment.) For purposes of economic and financial evaluation, the horizon or life of the project is the most widely used 10-year-operator, in exceptional cases 15 years.
STAGE OF ASSESSMENT RESULTS.
The project is the action or response to a problem, you need to check after a reasonable time of its operation, that indeed the problem has been solved by the intervention of the project. Otherwise, it is necessary to introduce appropriate remedial measures. Outcome evaluation completes the cycle, wondering about the effects of the last stage in the light of what started the process. Outcome evaluation has at least two important goals:
* Assess the impact of the project (employment, foreign exchange and decentralization), and entering into operation, to suggest corrective actions that may be appropriate.
* Assimilate the experience even enrich the level of knowledge and ability to improve future projects.
CALCULATION OF RETURN ON INVESTMENT.
With information about the amount of investment required and flows generated by the project over its lifetime proceed to calculate its performance. It is customary to represent the projects using a flow chart as follows:
$ 50,000 $ 60,000 $ 70,000 $ 80,000 $ 120,000 0 1 2 3 4
The downward arrows indicate negative cash flows or disbursements, the arrows rriba refer to income or cash receipts. For example, the $ 120,000 found in time 0 (or current account for the initial investment, hence the arrow is drawn down, the other values are represented up tickets or indicating that they are net positive cash flows. The numbers 1, 2.3 and 4 refer to the periods for the lifetime of the project. may be months, quarters, semesters, years or longer periods, but they advise that there are more than one year, nor too short, unless the project characteristics so require. Based on the above exercise, we proceed to illustrate the techniques usually applied in practice to determine the project’s economic goodness so require.
* Period of investment recovery, is to determine fair number of periods required to recover the initial investment. For example and assuming that each period is one year, the initial investment is recovered in about 2.14a~nos, calculated as follows:
At the end of year 2 the company or the project has recovered $ 110,000, will suffice, therefore, to recover additional $ 10,000 to cover the $ 120,000 invested at the beginning. As in year 3 $ 70,000 recovered, the proportion of years needed to generate $ 10,000 missing would be:
U.S. $ 10000
= 0.14 Approximate Therefore, the recovery period will 2.4a~nos
CALCULATION OF NET PRESENT VALUE OR CURRENT (VAN)
Defined as the present value of an investment from a discount rate, an initial investment and a series of future payments. The idea of V.A.N. is to update all future flows to the initial period (zero), compared to verify whether the benefits outweigh the costs. If the current benefits are greater than the costs to date, means that the profitability of the project is greater than the discount rate, it is said that “consequently, should invest” in this alternative. Then: For the “Net Present Value” of a project should be considered a mandatory “Discount Rate” (*) equivalent to the alternative rate of interest to invest the money in another project or investment vehicle. If appointed as FVn the net flow of a period “n”, (positive or negative), and represents the discount rate or discount rate “i” (interest), then the Net Present Value (year zero ) for the period “n” is equal to:
To decide, it is necessary to define a market opportunity rate, ie the maximum yield that could get into other investments available with similar risk. Suppose that is 28% with the rate you can calculate the present value equivalent using the procedure discussed at the beginning. Individual present values are summed and this result is subtracted from the amount of investment, thus obtaining the value at the time.
VPN: Sum of Income A Present Value – Initial Investment.
60.000 50.000 70.000 80.000
VPN = —————- + ————— + ————- + – -120,000 ————-
(1 +0.28) 1 (1 +0.28) 2 (1 +0.28) 3 (1 +0.28) 4
NPV = 39,000 + 36,621 + 33,379 + 29,802 -120,000
NPV = 138 000 120 000 = U.S. $ 18,865
If the rate of market opportunity is not 28% but 38%, and the project would not be allowed to give a VPN 0 U.S. $ – 3,568, or whether they represent a loss, to be negative.
CALCULATION OF THE INTERNAL RATE OF RETURN (IRR).
Defined as the internal rate of return on investment for a range of cash values. The T.I.R. a project is defined as the discount rate that allows net operating flows of a project equal to the initial investment. For this calculation should be clear what the “Initial Investment” project and which will be “revenue streams” and “Cost” for each of the periods throughout the project in order to consider the net benefits in each them. Mathematically it can be reflected as follows:
This means that it will seek a fee (d) that matches the initial investment to net operating flows of the project, which is the same as searching a rate that makes the NPV zero.
DECISION RULES FOR T.I.R.
If IRR> i means that the project has an associated cost more than the market rate (discount rate), so it is more convenient.
On the discount rate is one that is used to bring a present value cash flows. The equation for calculating the IRR. For this case is:
Note that the present value of expenditures amounts to the same initial investment, because the project has no negative cash flows in periods other than the initial time. In the above equation, r is the IRR, as bringing revenue at that rate its value equals $ 120,000 which is investment. By trial r could be found, but it is a fairly time consuming today, fortunately has been overshadowed by financial calculators and microcomputer.
For example the IRR = 36.20% per annum. This rate compares with the minimum rate of return and if over the project is accepted, otherwise rejected. The minimum rate of return is usually the rate the market opportunity cost of capital or sources of financing the project.
CALCULATION OF COST – BENEFIT.
This index is expressed in two ways: total and net (1st Formula)
IRT = PRESENT VALUE OF CASH INCOME
PRESENT VALUE OF CASH DISBURSEMENTS If the index is greater than 1 the project is accepted, otherwise rejected. (2nd Formula).
IRn = NET PRESENT VALUE PRESENT VALUE OF CASH DISBURSEMENTS
If the index is greater than zero, the project is accepted, otherwise rejected. In this the denominator corresponds to the value of the initial investment. The present value of the numerator is calculated using the minimum rate of return, which was assumed at 28%, that is, the rate of market timing. This calculation when dealing with the VPN.
In case 1, as is greater than one is accepted the project and in case 2, is greater than zero as the project is accepted. T he techniques presented in the previous section, provided the quantitative bases that serve as criteria for accepting or rejecting the project, according to their economic performance. However, it can happen in practice, accepting projects whose economic performance is below the minimum or to reject profitable projects. This is due to quality issues which have to do with the likes of investors, family tradition, aspects of competition, market saturation, etc …
It has been rightly said that purely monetary assessments to define the social economic feasibility of an investment is a restricted choice of measuring the impacts generated by this.
Projects often promise “moods” or views, that only in terms of subjective perception can observe about the universe, and that he may ultimately be the deciding factors in approving or rejecting a project idea. These are the cases where the intangibles are essential to take them into account but through the prism of its real and effective estimate and not based on empirical trial proactive evaluator or decision maker.
Consider the intangible effects imposed by the need to systematize a method by indirect measurement surveys as this paper illustrates an attempt to find a reference necessary and fair valuation. The incorporation of intangible effects on investment projects, to measure their social viability, may represent important nuances and policy considerations that impact on final changes to investments approved and / or rejected.
The method developed in this work reveals that it is possible and desirable for the purpose of selecting an investment alternative, consider the subjective or intangible nature and the objectives or measurable in monetary terms are the different concepts of costs associated with investment.
ENCYCLOPEDIA. MICROSOFT. Encarta. 2 000.
COHEN, E. (1992). Social Projects Evaluation. Twenty-First Century. Mexico
LEDESMA MARTINEZ, Zuleima. (1997). Social Economic Analysis of a Hydraulic Project Investment.
Readership. (1991). Basic Course Directors. Editorial Norma. Colombia.
COLOMA, F. (1991). Social evaluation of investment projects. IDA-Bco. La Paz. Bolivia.
MARIA LUISA RODRIGUEZ Br Graterol
AT3VA – IUF – Aragua – VENEZUELA
REPUBLIC OF VENEZUELA
MINISTRY OF HIGHER EDUCATION
UNIVERSITY OF TECHNOLOGY INSTITUTE OF INDUSTRIAL ADMINISTRATION
LECTURE: FINANCIAL MATHEMATICS