Project Finance & Appraisal Assignment

September 28, 2024

Question-1 Part (a) Project Selection

As a member of the strategic project selection team you are to evaluate each of the submitted proposals. The task is to present a business case beginning with ranking each proposed project according to the strategic objectives of USAID, and to select a project to be commissioned using the project selection tool in below. You MUST show your calculations and utilise analytical tools (such as Excel) to conduct your analysis. You can then present the output of your analysis in your business case under this section. Your analysis must consider the Payback Period and NPV of the projects and the qualitative ‘must’ and ‘want’ objectives of USAID. You MUST also engage with literature to demonstrate that you understand the analytical tools used

Solution of Question-1 Part (a) Project Selection

Business Case for Project Proposal 1

The project is designed to offer the investment costs and benefits shown below while remaining within the budgetary constraints of £75 million. Following are the outcomes of the calculations

NPV £222.53 Million

Payback periods 3.10 years

Discounted payback period 3.37 years

Year	Cash Flow	Present value factors @ 8	Present value
0	(25)	1.000	(25.00)
1	(50)	0.926	(46.30)
2	35	0.857	30.01
3	35	0.794	27.78
4	50	0.735	36.75
5	50	0.681	34.03
6	50	0.630	31.51
7	50	0.583	29.17
8	50	0.540	27.01
9	50	0.500	25.01
10	50	0.463	23.16
11	50	0.429	21.44
12	20	0.397	7.94
NPV			222.53

Years	CF	Net CF	DCF	NDCF
0	(25.00)	(25.00)	(25.00)	(25.00)
1	(50.00)	(75.00)	(46.30)	(71.30)
2	35.00	(40.00)	30.01	(41.29)
3	35.00	(5.00)	27.78	(13.51)
4	50.00	45.00	36.75	23.25
5	50.00	95.00	34.03	57.28
6	50.00	145.00	31.51	88.78
7	50.00	195.00	29.17	117.96
8	50.00	245.00	27.01	144.97
9	50.00	295.00	25.01	169.98
10	50.00	345.00	23.16	193.14
11	50.00	395.00	21.44	214.59
12	20.00	415.00	7.94	222.53

Business Case for Project Proposal 2

The table below shows the predicted investment costs and benefits of the project, which has a budget of £75 million and is expected to be completed in three years. Following are the outcomes of the calculations.

NPV £269.59 Million

Payback periods 2.0 years

Discounted payback period 2.20 years

Years	CF	Net CF	DCF
0	(75)	1.000	(75.00)
1	37.50	0.926	34.72
2	37.50	0.857	32.15
3	50	0.794	39.69
4	50	0.735	36.75
5	50	0.681	34.03
6	50	0.630	31.51
7	50	0.583	29.17
8	50	0.540	27.01
9	50	0.500	25.01
10	50	0.463	23.16
11	50	0.429	21.44
12	25	0.397	9.93
NPV			269.59

Years	CF	Net CF	DCF	NDCF
0	-75.00	-75.00	-75.00	-75.00
1	37.50	-37.50	-34.72	-40.28
2	37.50	$0.00	32.15	-8.13
3	50.00	50.00	39.69	31.56
4	50.00	100.00	36.75	68.32
5	50.00	150.00	34.03	102.34
6	50.00	200.00	31.51	133.85
7	50.00	250.00	29.17	163.03
8	50.00	300.00	27.01	190.04
9	50.00	350.00	25.01	215.05
10	50.00	400.00	23.16	238.21
11	50.00	450.00	21.44	259.66
12	25.00	475.00	9.93	269.59

Business Case for Project Proposal 3

A budget of £200 million is expected to be allocated to the project. It is expected to achieve the investment costs and benefits listed below. Following are the outcomes of the calculations.

NPV £-42.96 Million

Payback periods 10.667 years

Discounted payback period 21.039 years

Year	Cash Flow	Present value factors @ 8	Present value
0	(100.00)	1.000	(100.00)
1	2.50	0.926	2.31
2	2.50	0.857	2.14
3	5.00	0.794	3.97
4	10.00	0.735	7.35
5	10.00	0.681	6.81
6	10.00	0.630	6.30
7	10.00	0.583	5.83
8	10.00	0.540	5.40
9	15.00	0.500	7.50
10	15.00	0.463	6.95
11	15.00	0.429	6.43
12	(10.00)	0.397	(3.97)
NPV			(42.96)

Years	Cash Flow	Net Cash Flow	Discounted Cash Flow	Net Discounted Cash Flow
0	-100.00	-100.00	-100.00	-100.00
1	2.50	-97.50	2.31	-97.69
2	2.50	-95.00	2.14	-95.54
3	5.00	-90.00	3.97	-91.57
4	10.00	-80.00	7.35	-84.22
5	10.00	-70.00	6.81	-77.42
6	10.00	-60.00	6.30	-71.11
7	10.00	-50.00	5.83	-65.28
8	10.00	-40.00	5.40	-59.88
9	15.00	-25.00	7.50	-52.37
10	15.00	-10.00	6.95	-45.43
11	15.00	5.00	6.43	-38.99
12	-10.00	5.00	-3.97	-42.96

Question-1 Part (b) Project Justification

Using credible and appropriate project management literature, (i) critically justify your selected project showing how this aligns with the strategic organizational objectives of USAID,

Solution of Question-1 Part (b) Project Justification

Business Case for Project Proposal 1

Zajut Forest’s proposal does not meet the requirements of legal safety and environment. It is because the initial phase of the project’s site preparation will make use of technologies with a high energy consumption rate, as would the subsequent phase. This project violates the sensitivity output because the Zajut site continues to be a source of high conflict tension, and an early review of the project suggests that the proposed solutions have a high potential of triggering conflict among the local communities, which is concerning. Further, this project harms the orangutan population. The complete decommissioning will force the animals to migrate against the “must-have” point requirement 3.

Moving on to the “Want Objective”, farmers had no option to enhance their skills, functionality, and capabilities. Further, there was no advantage in technology used for development and the new and saleable solution. Only the point that is considered favorable to decide is the +NPV of 222.53 million and a simple and discounted payback period of 3.10 years and 3.37 years, respectively. However, such misalignment with the strategic organization of USAID will lead to low priories to the project.

Business Case for Project Proposal 2

Concerning the Natural Water treatment project, the project is designed with a reproducible, low-cost, and high-efficiency solution appropriate for tiny communities to alleviate localized pollution-related challenges and lessen the detrimental impacts on biodiversity and human health in rural regions of the Babam region. Therefore it meets the USAID requirement of safety and environmental standards. Further, the project is considered not to propagate conflict as it fosters peaceful cohabitation with communities, improves the community’s health, and encourages nature-based alternatives for water treatment and wastewater treatment. It is anticipated that the project will contribute to the achievement of the United Nations Sustainable Development Goals. The project does not have any adverse effect on the current operation of the Natural Water treatment project.

Concerning Want’s strategic objective, this proposal will help ensure that the general population has access to clean drinking water by increasing the availability of safe drinking water that meets the SDG requirements. It is a favourable investment because of its low construction, operating, and maintenance expenses and its high efficiency and simplicity of operation to guarantee that those who would be directly touched had a strong sense of ownership in the process. One of the best reasons for accepting the project and considering it at the top of the list is +NPV which is 269.59 m, along with a simple and discounted payback period of 2 years and 2.2 Years, respective, which meets the requirements of USAID Strategic wants of serial # 5.

Business Case for Project Proposal 3

Following the conclusions of the site’s pre-feasibility study, the project’s development would use a substantial amount of energy and hurt the sounding area’s ground stability. Buildings and other infrastructure near the technology may be affected by its implementation, influencing their structural integrity. Based on this submission, it violates all the 3 “must objectives” of USAID Strategic plan.

The extraction of water from the ground aqueducts will be performed by employing a drip irrigation technology linked to hydraulic fracturing. Solar-powered dams that are environmentally friendly and energy-efficient will be built due to the project. Additionally, advanced radar sensors that can detect changes in the environment and automatically start irrigation will be installed due to the project. It is anticipated that the irrigation systems will have innovative networking capabilities and be highly compatible with present agricultural equipment, resulting in conflict-sensitive solutions for farmers. This submission follows “want objectives” of additional benefits to farmers and advanced use of state of the art nature-based solutions for developments and basis for new development for new and scalable solutions. The project will generate +NPV with 42.96 million with payback and discounted payback of 10.067 years and 21.039 years. Based on such results, this project is prioritized as Second

NPV £-42.96 Million

Payback periods 10.667 years

Discounted payback period 21.039 years

Question-2 Project Finance & Strategy Analysis

Following your project selection, you have been task with developing proposals to senior management of

USAID on the following:

Economic and Financial analysis: An annual Statement of Costs and Benefits, and Trading and
Profit and Loss Account

For your economic analysis of your selected project, you must consider the following financial information for the investment project:

Question-2 Part (a) Project Finance & Strategy Analysis

Prepare an annual statement of costs and benefits (pre-financing). This must show the step-by-step approach learned in class. Interpret the results and support the use of analytical methods with reference to the relevant theoretical literature

(a)	Annual Statement of cost and benefits (Pre-Financing)
Units	Yr-1 (000)	Yr-2 (000)	Yr-3 to 12 (000)
Units	300	360	432
Cash inflows	–	–	–
Sales	6,000	7,200	8,640
Cash outflows	–	–	–
Direct Material Opening	–	250	300
Purchase of Direct Mat @20% SP (4)	1,200	1,440	1,728
Material Available for consumed	1,200	1,690	2,028
Less: Closing Stock	(250)	(300)	(360)
Direct Material consumed	950	1,390	1,668
Direct Lab @ 30% of SP	1,800	2,160	2,592
Prime Cost	2,750	3,550	4,260
Fixed Cost	3	3	3
Total Cost	2,753	3,553	4,263
Benefit / (Cost)	3,247	3,647	4,377

Solution Question-2 (a) Project Finance & Strategy Analysis

(b)	Annual Statement of cost and benefits (Post Financing)
	Yr-1	Yr-2	Yr-3	Yr-4	Yr-5	Yr-6	Yr-7	Yr-8	Yr-9	Yr-10	Yr-11	Yr-12
Sales	6.000	7.200	8.640	8.640	8.640	8.640	8.640	8.640	8.640	8.640	8.640	8.640
Less: Cost of sales	–	–	–	–	–	–	–	–	–	–	–	–
Final Goods – Opening	–	0.150	0.180	0.216	0.216	0.216	0.216	0.216	0.216	0.216	0.216	0.216
Manufacturing Cost	5.628	6.428	7.138	7.198	7.198	7.198	7.198	7.198	7.198	7.198	7.198	7.198
Final Goods – Available	5.628	6.578	7.318	7.414	7.414	7.414	7.414	7.414	7.414	7.414	7.414	7.414
Final Goods – Closing	(0.150)	(0.180)	(0.216)	(0.216)	(0.216)	(0.216)	(0.216)	(0.216)	(0.216)	(0.216)	(0.216)	(0.216)
Cost of sales	5.478	6.398	7.102	7.198	7.198	7.198	7.198	7.198	7.198	7.198	7.198	7.198
Gross profit	0.522	0.802	1.538	1.442	1.442	1.442	1.442	1.442	1.442	1.442	1.442	1.442
Operating Expense	–	–	–	–	–	–	–	–	–	–	–	–
Depreciation on Vehicle	0.500	0.500	0.500	0.500	0.500	0.500	0.500	0.500	0.500	0.500	0.500	0.500
Depreciation on Fixtures & Fitting	0.167	0.167	0.167	0.167	0.167	0.167	0.167	0.167	0.167	0.167	0.167	0.167
Depreciation on Machinery & Equipment	0.333	0.333	0.333	0.333	0.333	0.333	0.333	0.333	0.333	0.333	0.333	0.333
Depreciation on Building	1.917	1.917	1.917	1.917	1.917	1.917	1.917	1.917	1.917	1.917	1.917	1.917
Amortization on Construction of Labour	0.625	0.625	0.625	0.625	0.625	0.625	0.625	0.625	0.625	0.625	0.625	0.625
Total Operating Expenses	3.542	3.542	3.542	3.542	3.542	3.542	3.542	3.542	3.542	3.542	3.542	3.542
Profit before tax	(3.020)	(2.740)	(2.004)	(2.100)	(2.100)	(2.100)	(2.100)	(2.100)	(2.100)	(2.100)	(2.100)	(2.100)
Less: Tax @15%	(0.453)	(0.411)	(0.301)	(0.315)	(0.315)	(0.315)	(0.315)	(0.315)	(0.315)	(0.315)	(0.315)	(0.315)
Adjustment of tax loss	–	(0.453)	(0.864)	(1.164)	(1.479)	(1.794)	(2.109)	(2.424)	(2.739)	(3.054)	(3.369)	(3.684)
Tax expenses	(0.453)	(0.864)	(1.164)	(1.479)	(1.794)	(2.109)	(2.424)	(2.739)	(3.054)	(3.369)	(3.684)	(3.999)
Profit after tax	(3.473)	(3.604)	(3.168)	(3.579)	(3.894)	(4.209)	(4.524)	(4.839)	(5.154)	(5.469)	(5.784)	(6.099)

Question-2 Part (a) Project Finance & Strategy Analysis

Calculate the Trading Profit and Loss Account (Income Statement) and the Statement of Financial Planning for the project. Profits are taxable at 15% of annual profit and no tax holiday is available, but earlier losses can be offset against subsequent annual profits where applicable. Using appropriate ratios determine whether the level of profit is acceptable? Interpret the results with reference to the relevant theoretical literature

Solution Question-2 (b) Project Finance & Strategy Analysis

	Statement of Financial Position
	Yr-1	Yr-2	Yr-3	Yr-4
Non-Current Assets
Machinery and Equipment	2.00	2.00	2.00	2.00
Less: Allowance for depreciation	(0.33)	(0.67)	(1.00)	(1.33)
Book Value	1.67	1.33	1.00	0.67
Vehicles	2.00	2.00	2.00	2.00
Less: Allowance for depreciation	(0.50)	(1.00)	(1.50)	(2.00)
Book Value	1.50	1.00	0.50	–
Building	48.00	48.00	48.00	48.00
Less: Allowance for depreciation	(1.92)	(3.83)	(5.75)	(7.67)
Book Value	46.08	44.17	42.25	40.33
Fixtures & Fittings	2.00	2.00	2.00	2.00
Less: Allowance for depreciation	(0.17)	(0.33)	(0.50)	(0.67)
Book Value	1.83	1.67	1.50	1.33
Construction Labour	7.50	7.50	7.50	7.50
Less: Allowance for amortization	(0.63)	(1.25)	(1.88)	(2.50)
Book Value	6.88	6.25	5.63	5.00
	–	–	–	–
Current Assets	–	–	–	–
Account Receivable – W-1	28.85	34.62	41.54	41.54
Cash if found	3.25	3.65	4.38	4.32
Total Assets	90.05	92.68	96.79	93.19
Equity	–	–	–	–
Investment	73.50	–	–	–
Net Profit / (Loss)	(3.47)	(3.60)	(3.17)	(3.58)
	–	–	–	–
Liabilities	–	–	–	–
Accounts Payable W-2	14.46	17.35	20.82	20.82
Tax payable	0.45	0.86	1.16	1.48
	–	–	–	–
Total Equity and Liability	84.94	14.61	18.82	18.72

Y	1	2	3	4	5	6	7	8	9	10	11	12
PAT	-3.473	-3.604	-3.168	-3.579	-3.894	-4.209	-4.524	-4.839	-5.154	-5.469	-5.784	-6.099

Please find below gross profit, operating profit and net profit ration of each year

Year	1	2	3	4	5	6	7	8	9	10	11	12
Gross Profit Ratio	8.7	11.1	17.8	16.7	16.7	16.7	16.7	16.7	16.7	16.7	16.7	16.7
Operating Profit Ratio	59.0	49.2	41.0	41.0	41.0	41.0	41.0	41.0	41.0	41.0	41.0	41.0
Net Profit Ratio	-0.579	-0.500	-0.367	-0.414	-0.451	-0.487	-0.524	-0.560	-0.597	-0.633	-0.669	-0.706

Question-2 (c) Project Finance & Strategy Analysis

Critically explain why USAID should not rely on NPV for decision making

Solution Question-2 (c) Project Finance & Strategy Analysis

The project will not be accepted by USAID on the basis of its net present value. Fundamental to this choice is the idea of providing the nation with sustainable development, democratic governance, sustainability, and climate and catastrophe resilience as a means of achieving these goals. The primary goal of these projects is to give assistance in the communication process, rather than to create revenues from these endeavors. The mission of the United States Agency for International Development (USAID) is to alleviate poverty through promoting democratic government, rule of law, and inclusive institutions. The United Nations Population Division advocates for change and connects nations to information, expertise, and resources to assist people in building a better life. If any choice is made only on the basis of net present value (NPV) rather than on the basis of value for money services to the community, USAID will be in violation of its own strategic goals. The net present value (NPV) should not be used to determine the feasibility of a project.