Thursday, 17 February 2022

General scheme for assessing the viability of an investment project


An investment project is not only a form of implementation of the adopted investment decision, but also a form of resolving numerous contradictions that arise in the decision-making process. These contradictions can be divided into several groups:

• between the objective and subjective in the evaluation of the investment project;

• between the interests of the various project participants, such as investors and recipient enterprises;

• between the internal and external environment of the investment project:

• between the goals and possible means of achieving them, etc. The resolution of these contradictions is possible only on the basis of a comprehensive assessment of the investment project, taking into account all the inconsistency of the moments that arise in the process of making an investment decision.

Investment projects are usually evaluated when they are developed or examined to solve three types of problems:

1) evaluation of a specific project;

2) justification of the feasibility of participation in the project:

3) comparison of several projects (project options) and selection of the best of them.

The evaluation of a specific project involves the solution of two tasks:

1) assessment of the financial feasibility of the project:

2) assessment of the profitability of the project implementation or participation in it from the point of view of the subjects of investment activity. Such calculations are called calculations of absolute efficiency of investments.

If there are several alternative projects or variants of one project, it becomes important to compare them and choose the best of them. The corresponding calculations are called calculations of comparative efficiency of investments.

Thus, a full assessment of the viability of the investment project is possible only with a thorough and in-depth analysis of its financial feasibility and economic efficiency. The scheme for conducting a full assessment of the viability of the project is presented

Assessment of the viability of the investment project

To solve the above tasks, it is necessary to apply standardized methods of investment valuation. This, on the one hand, reduces the impact of differences in the level of competence of experts on the quality of analysis, and on the other hand, ensures the comparability of indicators of financial solvency and efficiency for different projects. Standardized evaluation methods, which are discussed below, allow you to evaluate the project both roughly approximately and quite accurately - depending on how complete and accurate the information included in the calculations is.

89 Economic indicators for assessing the effectiveness of investment projects (npv, irr, pi, mirr). Method for determining net discounted income (npv, pdd)

The main indicator used in assessing the effectiveness of an investment project is the net discounted income of NPV (Net Present Value). It characterizes the excess of total cash receipts over the total costs for a given project, taking into account the time of their implementation.

The project is considered effective and can be considered for its implementation if the value of the NPV is positive. At the same time, the more NPV, the more profitable and effective the project.

As follows from the formulas, the net discounted income of NPV depends both on the expected income and the size of the investment, and on the selected discount rate. The discount rate is set by the investor based on the annual percentage of income that he plans to receive on the invested capital.

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