In accordance with the goal, the main tasks were identified: - to study the theoretical foundations of the analysis of the investment project; - give an organizational and economic analysis of Eldorado LLC; - analyze the feasibility of implementing the investment project; - calculate the economic efficiency of the project. The object of the study is Eldorado LLC subject ...
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Cross-cutting task (option 10)
Perform calculations of the indicators given in table. 1.1 - 1.6, and draw conclusions about the dynamics of these indicators. According to the table. 1.7 draw a conclusion about the feasibility of the investment project.
Initial data:
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Investment costs, (initial cost of the object), million rubles. |
Useful life of the object, years |
Net profit from the implementation of the investment project, million rubles. |
Discount rate, % |
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including by year |
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Solution:
Table 1.1 Calculation of the efficiency of using the organization’s personnel ( enterprises )
Product output per employee of industrial production personnel (B). Characterizes the level of labor productivity in value terms and is determined by the formula:
where Q is the volume of commercial (gross) output produced for a given period;
h - average number of employees of industrial production personnel.
To determine the output per employee in physical terms (VN), the formula is used:
where q is the volume of products produced over a given period of time in natural units of measurement.
where is the average monthly salary of one employee per year;
Z f - actually accrued wage fund;
Number of months in a year.
Conclusion: the calculation results indicate that the analyzed indicators have changed over the course of three years. Output per worker, calculated using the natural and cost method, increased over the course of three years, which indicates an increase in the productivity of workers in the production process. The average monthly salary per employee per year also increased for three years.
Table 1.2 Calculation of the efficiency of use of fixed assets and capital-labor ratio
where F o is the capital productivity of fixed production assets;
where F e is the capital intensity of production.
where F in is the capital-labor ratio.
Conclusion: the calculation results indicate that during the three analyzed periods, capital productivity indicators increased (accordingly, capital intensity indicators decreased), and the capital-labor ratio increased, which indicates an increase in the efficiency of use of fixed assets.
Table 1.3 Calculation of the efficiency of using working capital
where K rev is the turnover ratio (turnover speed); RP - volume of products sold for the period;
SO - average balance of working capital for the period.
where T rev is the duration of the revolution;
T - period (year - 360 days).
where M OT is material yield;
MZ - material costs.
where M e is the material intensity of the product.
Conclusion: the calculation results indicate that the duration of one revolution in the second and third years compared to the first year increased and amounted to 196 and 195 days, respectively. The turnover rate, compared to the first year, decreased in the next two years and amounted to 1.84 and 1.85 turnover, respectively. All this indicates a slowdown in turnover in the second and third years compared to the first year. Material productivity increases every year, and material intensity, accordingly, decreases, which indicates an increase in the efficiency of use of material resources.
Table 1.4 Calculation of product costs
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Indicators (cost elements) |
Value, million rubles |
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1. Material costs |
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2. Labor costs |
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3. Contributions for social needs |
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4. Depreciation of fixed assets and intangible assets involved in business activities |
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Total costs |
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Contributions for social needs (rate 34% of payroll):
O 1st year = 11496 million rubles. × 0.34 = 3908.64 million rubles.
O 2nd year = 11556 million rubles. × 0.34 = 3929.04 million rubles.
O 3rd year = 11640 million rubles. × 0.34 = 3957.6 million rubles.
,
de AO - depreciation charges calculated using the linear method;
AC - depreciable cost of fixed assets;
N a - depreciation rate.
Total costs:
S 1st year = 101308 + 11496 + 3908.64 + 20680 + 471 = 137863.64 million rubles.
S 2nd year = 101008 + 11556 + 3929.04 + 21010 + 475 = 137978.04 million rubles.
S 3rd year = 101940 + 11640 + 3957.6 + 21340 + 492 = 139369.6 million rubles.
Conclusion: the calculation results indicate that the cost of production is increasing every year, which is due to the annual increase in labor costs with deductions for social needs, the increase in depreciation of fixed assets and intangible assets involved in business activities, as well as the increase every year other costs. Material costs in the 2nd year compared to the 1st year decreased, and in the 3rd year they increased, exceeding the level of both the 2nd and 1st years.
Table 1.5 Calculation of net profit
personnel capital-labor ratio cost profit
Note. The procedure for calculating and rates of taxes and non-tax payments shall be adopted in accordance with current legislation.
Revenue from sales of products (the product of the volume of products sold and the selling price of a product unit):
In p 1st year = 2356 thousand units. × 83 thousand rubles. = 195548 million rubles.
In p 2nd year = 2375 thousand units. × 83 thousand rubles. = 197125 million rubles.
In p 3rd year = 2458 thousand units. × 83 thousand rubles. = 204014 million rubles.
Deductions made from revenue (VAT at 20%):
VAT 1st year = 195548 million rubles. × 20 / 120 = 32591.33 million rubles.
VAT 2nd year = 197125 million rubles. × 20 / 120 = 32854.17 million rubles.
VAT 3rd year = 204014 million rubles. × 20 / 120 = 34002.33 million rubles.
Profit from sales:
P r 1st year = 185548 million rubles. - 137863.64 million rubles. - 32591.33 million rubles. = 15093.03 million rubles.
P r 2nd year = 197125 million rubles. - 137978.04 million rubles. - 32854.17 million rubles. = 26292.79 million rubles.
P r 3rd year = 204014 million rubles. - 139369.6 million rubles. - 34002.33 million rubles. = 30642.07 million rubles.
Real estate tax (1% of the residual value of OPF (Residual value of OPF = Initial (depreciable) cost of fixed assets - Depreciation)):
NN 1st year = (188,000 million rubles - 20,680 million rubles) × 1% / 100% = 1673.2 million rubles.
NN 2nd year = (191,000 million rubles - 21010 million rubles) × 1% / 100% = 1699.9 million rubles.
NN 3rd year = (194,000 million rubles - 21,340 million rubles) × 1% / 100% = 1,726.6 million rubles.
Profit subject to taxation (P n):
P n 1st year = 15093.03 million rubles. - 1673.2 million rubles. = 13419.83 million rubles.
P n 2nd year = 26292.79 million rubles. - 1699.9 million rubles. = 24592.89 million rubles.
P n 1st year = 30642.07 million rubles. - 1726.6 million rubles. = 28915.47 million rubles.
Income tax (24% of profit subject to taxation):
NP 1st year = 13419.83 million rubles. × 24% / 100 = 3220.76 million rubles.
NP 2nd year = 24592.89 million rubles. × 24% / 100 = 5902.29 million rubles.
NP 3rd year = 28915.47 million rubles. × 24% / 100 = 6939.71 million rubles.
Local taxes paid from profits (at a rate of 3% of the profits remaining at the disposal of the organization after paying income tax):
N m 1st year = (13419.83 million rubles - 3220.76 million rubles) × 3% / 100 = 305.97 million rubles.
N m 2nd year = (24592.89 million rubles - 5902.29 million rubles) × 3% / 100 = 560.72 million rubles.
N m 3rd year = (28915.47 million rubles - 6939.71 million rubles) × 3% / 100 = 659.27 million rubles.
Net profit (NP):
PP = P n - NP - N m.
PE 1st year = 13419.83 million rubles. - 3220.76 million rubles. - 305.97 million rubles. = 9893.1 million rubles.
Emergency 2nd year = 24592.89 million rubles. - 5902.29 million rubles. - 560.72 million rubles. = 18129.88 million rubles.
PE 3rd year = 28915.47 million rubles. - 6939.71 million rubles. - 659.27 million rubles. = 21316.49 million rubles.
Conclusion: the calculation results indicate that over the three analyzed periods, profit from product sales, taxable profit and net profit increased, which was primarily caused by the faster growth rate of revenue from product sales over the increase in cost and indicates an increase in the efficiency of financial and economic activities of the enterprise.
The economic feasibility of an investment project is characterized by a system of indicators:
Net present value (NPV) or net present value (NPV). Net present value characterizes the effect of the project, reduced to the initial point in time. If the net present value of a project is positive, this indicates the presence of real income from its implementation.
Profitability index (PI or ID). If PI > 1, the investment project is effective.
Discounted payback period (DPP). It refers to the expected period of recovery of the initial investment from net proceeds.
,
where R t - results achieved at the t-th calculation step;
C t - costs at the t-th calculation step, provided that they do not include capital investments; - the corresponding calculation step;
T - calculation horizon; - discount rate;
K is the amount of discounted capital investments.
;
where is the average value of discounted annual income.
Conclusion: since the net present value of the project is positive (58.851 > 0), this indicates the presence of real income from its implementation; profitability index 1.098 > 1, therefore, the investment project is effective. The payback period will be 0.91 years (about 11 months). The implementation of the investment project is advisable.
List of sources used
1. Volkov, O. I. Enterprise economics: a course of lectures / O. I. Volkov, V. K. Sklyarenko. - Moscow: Infra-M, 2008. - 383 p.
Golovachev, A. S. Enterprise Economics. At 2 p.m. Part 2: tutorial. allowance / A. S. Golovachev. - Minsk: Vysh. school, 2008. - 464 p.
Zaitsev, N. L. Economics of an industrial enterprise. Workshop: textbook. allowance. - 3rd ed. - Moscow: Infra-M, 2006. - 223 p.
Sklyarenko, V.K. Enterprise economics: textbook / V.K. Sklyarenko, V.M. Prudnikov. - Moscow: Infra-M., 2006. - 527 p.
Slepneva, T. A. Enterprise economics: textbook / T. A. Slepneva, E. V. Yarkin. - Moscow: Infra-M, 2006. - 457 p.
Economics of enterprise: textbook. manual / V.P. Volkov, A.I. Ilyin, V.I. Stankevich and others - 2nd ed., revised. - Moscow: New knowledge, 2004 - 672 p.
Economics of enterprise: textbook. allowance / L.N. Nekhorosheva [and others]; under general ed. L.N. Not good. - Minsk: BSEU, 2008. - 719 p.
For a newly created industrial production to obtain products with given consumer qualities on the set We = Me x Re x Se, find a variant w* e We for which the sum of the weighted relative losses of individual criteria has a minimum value. The determination of option w* is carried out using indicators:
net present value;
profitability index;
discounted payback period.
The set We is a Cartesian product of sets of options: conditions for the sale of finished products Me, financing schemes for the investment project Re, sources of financing for the investment project Se.
In formalized form, the task is to find the minimum of the objective function Fe (we):
*
w = argmin Fe (we), (3.65)
weWe
when fulfilling restrictions on system performance indicators
Topics:
s-NPV^ w G7 NPV, zad. fl
(3.67)
FT7 (we) > F«p-d;
Fe (we) > Fe " ; (3.66)
(3.68)
F^co (we)^;
connection equations representing mathematical models:
forming options for sources of financing for an investment project
M1 (A, PR, IC, CR) = 0, (3.69)
formation of options for the conditions for the sale of products obtained during the implementation of the project
M2(D, P, RC) = 0, (3.70)
- formation of options for financing schemes for an investment project
M3(TP, FC) = 0. (3.71)
Here W is the set of possible options for synthesizing cash inflows and outflows for an investment project, We = Me x Re x Se, Me is the set of options for the conditions for the sale of finished products, Re is the set of options for project financing schemes (sequence of financing), Se is the set of options for sources financing an investment project; we t = (mopt; ropt; sopt) - the optimal option.
Fe4nG"zad is the specified value for the NPV indicator (as noted in section 1.2, the rule for making a decision on an investment project using this criterion is that for a cost-effective project NPV > 0). However, it will not be advisable for the investor to accept the option the NPV value of which will be equal to, for example, 10 rubles, therefore, as the optimal NPV value we will take an acceptable value of the indicator corresponding to the scale of the investor;
F^hp, zad is the specified value of the IR indicator (as noted in Section 1.2, the rule for making a decision on an investment project using this criterion is that for a cost-effective project IR > 1);
F^co"zad is the specified value of the SVA indicator (as noted in section 1.2, the rule for making a decision on an investment project using this criterion is such that for a cost-effective project the calculated SVA is less than the SVA expected by the investor). The shorter the period the time during which the investor will be able to fully recoup the costs of the project, the more favorable the project is for him.
Makeevka Economics and Humanities Institute
Department of Enterprise Economics
Practical task
in the discipline “Investment activity”
Makeevka –2009
Individual task No. 7
The enterprise is considering the feasibility of implementing an investment project, the main indicators of which are presented in the table (for three options).
The company uses the straight-line depreciation method. The income tax rate is 25%.
Assess the economic efficiency of the investment project by calculating the net present value and return on investment index if the project discount rate is 12% (or 15%).
Graphically and calculatedly determine the break-even point of the project.
Table. Initial data for assessing the effectiveness of the project (for three options) Indicators Values of indicators for options 1 2 3 Sales volumes for the year, pcs. 2900 4300 3240 Unit price, thousand UAH 0.33 0.3 0.31 Variable costs for producing a unit of product, thousand UAH 0.23 0.2 0.22 Annual fixed costs excluding depreciation of fixed assets, thousand UAH. 45 57 58 Annual depreciation rate of fixed assets, % 8 8 8 Initial investment costs, thousand UAH 420 510 690 - including fixed assets, thousand UAH. 410 450 520 Project implementation period, years 7 8 8
Draw conclusions by characterizing the level of investment attractiveness and investment risk of the project.
Solution:
1. Let's calculate the net discounted income from the project implementation according to three options.
Let us determine the size of cash flows during the implementation of the project in the first option. Let's enter the data in table 1.
Table 1. Cash flows of the investment project implementation code Article 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 1 Sales proceeds, UAH. 957000 957000 957000 957000 957000 957000 957000 2 Investments, UAH 420000 3 Variable costs, UAH 667000 667000 667000 667000 667000 667000 667000 4 Fixed costs, UAH 45000 45000 45000 45000 45000 45000 45000 5 Depreciation 32800 32800 32800 32800 32800 32800 32800 6 Profit(01- 03-04-05) 212200 212200 212200 212200 212200 212200 212200 9 Net profit (06*0.75) 159150 159150 159150 159150 159150 159150 159150 9 Net cash flow, UAH(05+09) -420000 191950 191950 191950 191950 191950 191950 191950
Let us determine the discounted indicators for assessing the economic efficiency of the project if the project discount rate is
i =12%.
NPV = />– Iс, where (1)
/>
Ic - primary investment.
i – discount rate.
NPV = />– 420000 = 876013.07 - 420000= 456013.07 UAH.
Return on investmentR.
R=/>, (2)
R=/>= 2.08 R >1
NPV = />– 420000 = 798592.57 - 420000 = 378592.57 UAH.
Profitability R=/>= 1.90
Let us determine the size of cash flows during the implementation of the project in the second option. We will enter the data in table 2.
Table 2. Cash flows for the implementation of an investment project code Article 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 1 Sales proceeds, UAH 1290000 1290000 1290000 1290000 1290000 1290000 1290000 1290000 2 Investments, UAH 510000 3 Variable costs, UAH 860000 860000 860000 860000 860000 860000 860000 860000 4 Fixed costs, UAH 57000 57000 57000 57000 57000 57000 57000 57000 5 Depreciation 36000 36000 36000 36000 36000 36000 3600 0 36000 6 Profit (01-03-04-05) 337000 337000 337000 337000 337000 337000 337000 337000 9 Net profit (06*0.75) 252750 252750 252750 252750 252750 2 52750 252750 252750 9 Net cash flow, UAH(05+09) -510000 288750 288750 288750 288750 288750 288750 288750 288750
NPV = />– Iс, where (1)
/> - cash receipts for the kth year;
Ic - primary investment.
i – discount rate.
In our case
NPV = />– 510000 = 1434405.98 - 510000 = 924405.98 UAH.
The net present value NPV is positive, the project is suitable for implementation.
Return on investmentR.
R=/>, (2)
R=/>= 2.81 R> 1
With a discount rate of 15%:
NPV = />– 510000 = 1295714.09 - 510000= 785714.09 UAH.
Profitability R=/>= 2.54
Let us determine the size of cash flows during the implementation of the project in the third option. We will enter the data in table 3.
Table 3. Cash flows for the implementation of an investment project code Article 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 1 Sales proceeds, UAH 1004400 1004400 1004400 1004400 1004400 1004400 1004400 1004400 2 Investments, UAH 690000 3 Variable costs, UAH 712800 712800 712800 712800 712800 712800 712800 712800 4 Fixed costs, UAH 58000 58000 58000 58000 58000 58000 58000 58000 5 Depreciation 41600 41600 41600 41600 41600 41600 4160 0 41600 6 Profit (01-03-04-05) 192000 192000 192000 192000 192000 192000 192000 192000 9 Net profit (06*0.75) 144000 144000 144000 144000 144000 1 44000 144000 144000 9 Net cash flow, UAH(05+09) -690000 185600 185600 185600 185600 185600 185600 185600 185600
Let us determine the discounted indicators for assessing the economic efficiency of the project if the project discount rate is i = 12%.
NPV = />– Iс, where (1)
/> - cash receipts for the kth year;
Ic - primary investment.
i – discount rate.
In our case
NPV = />– 690000 = 921993.94 - 690000= 231993.94 UAH.
The net present value NPV is positive, the project is suitable for implementation.
Return on investmentR.
R=/>, (2)
R=/>= 1.33 R> 1
With a discount rate of 15%:
NPV = />– 690000 = 832846.87 - 690000= 142846.87 UAH.
Profitability R=/>= 1.20
Graphically and by calculation we will determine the break-even point of the project.
/>
Let's calculate the break-even point using the formula:
TB = />, where
TB =/> = 570 pcs.
So, we will choose for implementation the project with the highest profitability indicator. The project according to option 2 has the highest profitability R = 2.81 at a discount rate of 12%.
Individual task No. 1
The enterprise is considering the feasibility of implementing an investment project, the main indicators of which are presented in Table 1.
It is necessary to characterize the level of investment attractiveness and investment risk for each investment option, while:
1. Assess the economic efficiency of the investment project by calculating the net discounted income and the return on investment index if the project discount rate is 10%.
2. Determine net present value if, due to the acquisition of new, more advanced equipment, variable costs decrease to 0.19 thousand gr. per unit of production (at the same time, the cost of purchasing fixed assets will increase by 198 thousand grams).
3. Calculate to determine the break-even point for two alternative options.
Table 1. Information for solving the problem Indicators Values Sales volumes for the year, pcs 2950 Price per unit of production, thousand UAH 0.3 Variable costs for producing a unit of product, thousand UAH 0.21 Annual fixed costs excluding depreciation of fixed assets, thousand UAH. 59.6 Annual depreciation rate of fixed assets, % 7 Initial investment costs, thousand UAH 740 - including fixed assets, thousand UAH. 550 Project implementation period, years 7 Income tax rate, % 25
Solution:
The company is considering the implementation of two investment projects: the data for the first are shown in Table 1, the second is characterized by the acquisition of more advanced equipment (variable costs will decrease to 0.19 thousand UAH per unit of production, and the cost of purchasing fixed assets will increase by 198 thousand UAH).
1. Let us evaluate the economic efficiency of the implementation of the first investment project. Let's determine the amount of cash flows during the project implementation. We will enter the data into Table 2.
Table 3. Cash flows from the implementation of the investment project code Article 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 1 Sales proceeds, UAH. 885000.0 885000.0 885000.0 885000.0 885000.0 885000.0 885000.0 2 Investments, UAH 740000.0 3 Variable costs, UAH 619500.0 619500.0 619500.0 619500 ,0 619500,0 619500, 0 619500.0 4 Fixed costs, UAH 59600.0 59600.0 59600.0 59600.0 59600.0 59600.0 59600.0 5 Depreciation 38500.0 38500.0 38500.0 38500.0 38500.0 3 8500.0 38500.0 6 Profit (01-03-04-05) 167400.0 167400.0 167400.0 167400.0 167400.0 167400.0 167400.0 7 Net profit (06*0.75) 125550.0 125550, 0 125550.0 125550.0 125550.0 125550.0 125550.0 8 Net cash flow, UAH (05+07) -740000.0 164050.0 164050.0 164050.0 164050.0 164050.0 164 050.0 164050 .0
NPV = />– 740000 = 798664.1 -740000= 58664.1 UAH.
Return on investmentR.
R=/>= 1.08 R> 1
The net present value NPV is positive, the project is suitable for implementation, but the profitability of the project is low, slightly more than 1.
2. Let us determine the size of cash flows during the implementation of the project in the second option if, due to the acquisition of new, more advanced equipment, variable costs decrease to 0.19 thousand UAH. per unit of production (at the same time, the cost of purchasing fixed assets will increase by 198 thousand UAH). Let us assume, since this condition does not stipulate additionally, that by the amount of increase in fixed assets the total amount of investments will increase (the amount of working capital remains unchanged).
Table 3. Cash flows from the implementation of the investment project code Article 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 1 Sales proceeds, UAH. 885000.0 885000.0 885000.0 885000.0 885000.0 885000.0 885000.0 2 Investments, UAH 938000.0 3 Variable costs, UAH 560500.0 560500.0 560500.0 560500 ,0 560500,0 560500, 0 560500.0 4 Fixed costs, UAH 59600.0 59600.0 59600.0 59600.0 59600.0 59600.0 59600.0 5 Depreciation 52360.0 52360.0 52360.0 52360.0 52360.0 5 2360.0 52360.0 6 Profit (01-03-04-05) 212540.0 212540.0 212540.0 212540.0 212540.0 212540.0 212540.0 7 Net profit (06*0.75) 159405.0 159405, 0 159405.0 159405.0 159405.0 159405.0 159405.0 8 Net cash flow, UAH (05+07) -938000.0 211765.0 211765.0 211765.0 211765.0 211765.0 211 765.0 211765 .0
Let us determine the discounted indicators for assessing the economic efficiency of the project; the project discount rate is i = 10%.
NPV = />– 938000 = 1030960.7-938000= 92960.7 UAH.
Return on investmentR.
R=/>= 1.1 R> 1
By calculation we will determine the break-even point of the project using the formula:
TB = />, where
TB – break-even volume, pcs;
PI – fixed costs, UAH;
CI – price per unit of production, UAH;
PerII – variable costs per unit of production, UAH.
TB1=/> = 662 pcs.
TB2=/> = 542 pcs.
By all indicators, the second project is more attractive, provides a higher absolute income, slightly higher profitability, and has a larger margin of safety. We accept the implementation of the second project.
Individual task No. 3
The company is planning to purchase a new production line. Data characterizing the level of production and sales of products for three alternative investment options are presented in Table 3.
Using this data, it is necessary to justify the safest investment option, while:
1. For each alternative investment option, find the break-even point.
2. Construct a break-even chart for each investment option.
3. Determine the return on investment if it is known that, according to optimistic estimates, the sales volume will be 140% of the break-even point (probability 35%), the expected sales volume is planned to be 15% more than the break-even point (probability 0.5), according to pessimistic estimates, the sales volume will be 5% below the break-even point (probability 0.15).
Table. Initial data for assessing the effectiveness of the project (according to three options) Indicators Values of indicators Option 1 Option 2 Option 3 Annual fixed costs, UAH. 350000 940000 740000 Variable costs for production of a unit of production, UAH 18 12 16 Price of a unit of production, UAH 31 31 31 Necessary investments, UAH. 2300000 2750000 2600000
Solution:
By calculation we will determine the break-even point for each alternative option using the formula:
TB = />, where
TB – break-even volume, pcs.;
PI – fixed costs, UAH;
CI – price per unit of production, UAH;
PerII – variable costs per unit of production, UAH.
For the first option TB1 = /> = 26923 pcs.
For the second option TB2= />= 49473 pcs
For the third option TB3= />= 49333 pcs
2. Let's build a break-even chart for each investment option (Fig. 1, Fig. 2, Fig. 3).
Obviously, the graphs confirm the calculated data.
3. Let us determine the return on investment if it is known that, according to optimistic estimates, the sales volume will be 140% of the break-even point (probability 35%), the expected sales volume is planned to be 15% more than the break-even point (probability 0.5), according to pessimistic estimates, the sales volume will be 5% below the break-even point (probability 0.15).
Since in our case the determination of sales volume is probabilistic, we will find the average sales volume using the formula:
/>, where
/> - average sales volume,
/> - sales volume,
/> - probability.
/>26923/>1.4/>0.35+26923/>1.15/>0.5+26923/>0.95/>0.15 = 32509 pcs.
Picture 1
/>
/>49333/>1.4/>0.35+49333/>1.15/>0.5+49333/>0.95/>0.15 = 59569 pcs.
To determine the profitability of an investment R, it is necessary to calculate the ratio of cash inflows to cash outflows (in our case, the ratio of gross revenue to the amount of required investments).
R=/>,
R1=/>= 0.44 R
R2=/>= 0.67 R
Figure 2
/>
R3=/>= 0.71 R
The profitability of all three projects is less than one. Under these conditions, none of them can be recommended for implementation. However, it should be taken into account that according to the terms of the task, the implementation of projects is considered only for one year. In fact, investments provide returns over several years. If we consider projects over a longer period, then profitability will certainly increase and reach acceptable values. In this case, the third option is the most interesting (R is maximum).
Figure 3
/>
The Federal Law “On investment activities in the Russian Federation, carried out in the form of capital investments” provides the following definition of an investment project (hereinafter referred to as IP); “An investment project is a justification for the economic feasibility, volume and timing of capital investments, including the necessary design and estimate documentation developed in accordance with the legislation of the Russian Federation and standards (norms and rules) approved in the established manner, and
also a description of practical actions for making investments (business plan).”
An investment project is a set of systemically united intentions, documents and practical actions to achieve the goals of investment investments, to ensure specified financial, economic, production and social results.
Depending on the areas of investment and the goals of their implementation, investment projects can be classified into production, scientific and technical, commercial,
financial, environmental, socio-economic.
Production investment projects involve investing in the creation of new ones, expansion, modernization or reconstruction of existing fixed assets and production facilities for various spheres of the national economy, including housing, social services, etc.
Scientific and technical investment projects are aimed at the development and creation of new highly efficient products with new properties, new highly efficient machines, equipment, technologies and technological processes. The development and implementation of scientific, technical and production projects are often interconnected. The implementation of production projects is often a continuation of the implementation of scientific and technical projects.
An indispensable condition for the prosperity of the country, the national economy and the regional economy is the implementation, first of all, of scientific, technical innovation and investment projects. The implementation of such projects creates conditions for the qualitative renewal of fixed assets, which are the basis for the production of various goods and the provision of services, and the formation of newly created value.
The essence of commercial investment projects is to make a profit on investments made as a result of the purchase, sale and resale of any products, goods, services.
Since newly created value is not formed outside of material production, but is only redistributed, the profitability of commercial investment projects is the result of the redistribution of newly created value in the sphere of material value. The effect of the implementation of commercial investment projects can become capital-forming if the income and profit received are a source of financial support for production or scientific and technical investment projects.
Financial investment projects are associated with the acquisition, formation of a portfolio of securities and their sale, purchase and sale of debt financial obligations, as well as the issue and sale of securities. There are three possible cases here.
In the first case, the investor-buyer and holder of securities receives dividends on them and increases his financial capital. The source of capital increase is the implementation of production investment projects.
In the second case, the investor-buyer and seller of debt obligations also increases his financial capital. At the same time, there is no increase in total capital in the national economy, but there is a redistribution of it in the sphere of financial circulation.
In the third case, the implementation of a financial investment project is directly related to and is an integral part of the implementation of a production investment project. An investor, implementing a project for the issue and sale of securities, solves the problem of financial support for production
investment project.
Environmental investment projects include projects that result in the construction of environmental protection facilities or improved parameters of existing production facilities, enterprises, and operating services in terms of harmful emissions into the atmosphere and impacts on nature.
The result of the implementation of socio-economic investment projects is the achievement of a certain socially useful goal, including a qualitative improvement in the state of healthcare, education, culture in the country and regions.
The implementation of investment projects related to the creation of new, expansion, reconstruction, technical re-equipment of existing enterprises or production facilities requires the implementation of a number of measures for the acquisition, leasing, allotment and preparation of land plots for development, carrying out engineering surveys and commissioning works, developing design documentation for construction or reconstruction of buildings and structures, acquisition of technological equipment, provision of the created (re-equipped or repurposed) enterprise (production) with the necessary personnel, raw materials, components, organization of sales of products intended for production. The implementation of these measures in conjunction with the organizational and technological support for the implementation of the project is an investment process.
The investment process includes a fairly wide range of work - from the idea of a project to the possibility of including the invested enterprise in a system of a certain type and type of market.
The creation and implementation of an investment project includes the following stages:
formation of an investment plan (idea); pre-project study of investment
opportunities;
business plan development;
acquisition or lease and allocation of land; preparation of contract documentation; preparation of project documentation; implementation of construction and installation works, including
commissioning;
operation of the facility.
An enterprise's investments can cover both the full scientific and technical cycle of creating a product, and its elements (stages): scientific research, design
work, reconstruction and expansion of the existing
production, creation of new production, organization of sales of goods, etc.
Formation of an investment plan (idea) includes:
birth and preliminary justification of the plan; innovative, patent and environmental analysis of a technical solution (technical object, resource, service), the organization of production of which is provided for by the planned project;
creation of a dealer network;
creation of service and repair centers; current monitoring of economic indicators of the functioning of the created enterprise, production, facility.
When making investments, investors solve the following main tasks:
1. Growth of the production and economic potential of enterprises and organizations as a result of effective
investment activities. The development strategy of any enterprise (organization) - both financial and production - from the moment of its creation involves a constant increase in the volume of production and provision of services, expansion of the scope of activity and positions in the markets of goods and services, industry and regional diversification. The implementation of this strategy is ensured, first of all, through investment activities. As a result, it is updated
the production potential of the enterprise (organization) is qualitatively improved and quantitatively increased,
fixed assets, the technical level of production and service increases and, ultimately, economic potential grows. This applies to both goods-producing and industrial services (transportation of goods, electricity, gas, etc.), communal services (provision of office space, housing, etc.), socio-cultural (tourism, sports services, cinema and concert services, etc.), financial and economic (insurance, banking, stock exchange services, etc.) services to enterprises and organizations.
- 2.Maximizing financial returns. The main final indicators of the efficiency of all production and economic activities of enterprises, including investment, are the amounts of income and profit received. Receiving income and profit are necessary conditions not only for ensuring the consumption fund (the fund for wages of workers, their incentives), but also the accumulation fund, with the help of which the development and increase in the efficiency of production potential is carried out. The growth rate of these funds depends entirely on the invested capital and the efficiency of its use.
- 3.Optimization of investments. This task is directly related to the task of obtaining maximum return on investment. Return on investment in various areas of production and economic activity in various regions of the country, in international projects, etc. differs significantly, therefore it is especially important to ensure the effectiveness of not only a separate production and investment project, but also to optimize the distribution of investments in the development of the economy of regions, industries, and the country as a whole, taking into account international cooperation in production and management. The optimization considered applies to a greater extent to the public sector of the economy, regional economies, industrial economies, as well as large investment, financial and production organizations. The return on investments of various legal entities and individuals in shares and securities depends on the policy of forming their portfolio.
- 4. Minimizing risk when implementing investment projects. Entrepreneurship in a market economy is always associated with uncertainty of market conditions and prospects, and therefore with a certain degree of risk. This applies most of all to investments, the return on which may occur in a few years.
The fact is that the market environment is characterized by volatility and unpredictability. There are many such examples: cessation of supplies of cheap energy resources to the market; the appearance on the market of cheaper and less energy-intensive vehicles; the “release” of new types of electrical equipment and new types of computers onto the market; changes in the tax system, etc. In other words, in market conditions, risk is almost inevitable.
When making real (capital-forming) investments, there is always uncertainty associated with the possibility of adverse situations and consequences arising during the implementation of the project. Incompleteness or inaccuracy of information on volumes and prices of product sales, purchase prices of raw materials, components, etc. when determining the volume and timing of capital investments, it leads to an increase in the degree of risk when implementing investment projects.
The risk is especially great if capital investments
are sent to enterprises that use natural raw materials and materials in their production process (mining enterprises, processing plants, metallurgical plants, etc.). In this case, the process of ore mining itself may become more expensive (when it is necessary to conduct deep mining of the deposit, the position of the ore layer, rock hardness, water supply, etc. will change), the quality of ore raw materials may deteriorate (decrease in the content of valuable components in ores, the appearance of
accompanying components, i.e. change in material composition). All this, in general, naturally leads to higher prices for products and a decrease in the efficiency of capital investments. Similar unpredictability also exists in the prices of electricity, fuel and other resources.
An error in the price of a product associated with a certain unpredictability of just 1% leads to losses amounting to at least 1% of the proceeds from the sale of the product. With product profitability equal to 10-12%, with a price error of 1%, losses in profit can amount to 5-10%.
Therefore, when making decisions on the implementation of specific investment projects, in-depth and comprehensive research is necessary to significantly reduce the degree of investment risk and the possible financial, property and other losses associated with it.
- 5. Ensuring the financial stability and solvency of the firm or company in the process of carrying out investment activities. Investments in the implementation of large projects involve the diversion of financial resources in large quantities and for a sufficiently long period of time. This can lead to a decrease in the solvency of enterprises and organizations for current business operations, payments to the budget, and ultimately even to bankruptcy. In addition, when implementing large investment projects, production organizations, as a rule, attract loans and borrowed funds at interest. And the presence of a large share of borrowed funds in the assets of organizations can lead to a decrease in their financial stability in the future. In this regard, when forming investment sources, accepting lending conditions, assessing the effectiveness and timing of investment projects, it is necessary to conduct an in-depth analysis and forecast the state of the current sustainability of the enterprise at all stages and phases of their implementation.
- 6. Finding ways to speed up the implementation of investment projects. The time factor in any economy, and especially in a market economy, plays a particularly important role. Reducing the time for implementation of investment projects accelerates:
return on financial resources and other capital invested by investors by accelerating the production of products and their sales;
the terms of use of the loan and other borrowed funds, and therefore the amount of interest paid on them;
calculation of depreciation amounts. As a result, the accumulation of depreciation funds and profits, which are sources of further development and technical improvement of production, accelerates.
In addition, accelerating the implementation of investment projects significantly reduces the degree of risk in their implementation.
It should be noted that the main objectives of investment projects are closely interrelated and, in general, solve the main task - increasing the efficiency of investment
