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Industrial feasibility analysis: Introduction Nur Aini Masruroh http://aini.staff.ugm.ac.id/ ; Email: [email protected]; [email protected] Questions What is feasibility analysis? Why should we perform it? What do you expect to get from this course? Materials Introduction Non-capital analysis Business concept Marketing aspect Technical and operational aspect Legal aspect Environmental aspect Capital planning and budgeting Materials (cont’d) Basic capital investment analysis Capital asset pricing model Replacement analysis Capital investment analysis in uncertain world Feasibility report Grading Assignments Mid term Final exam : 50% : 25% : 25% (compulsory) Text books J.R. Canada, W.G. Sullivan, D.J. Kulonda, and J.A. White, 2005, Capital Investment Analysis for Engineering and Management, 3rd Ed., Prentice Hall, New York. Bodie, Z., Kane, A., and Marcus, A.J., 1999, Investments, 4th Ed., McGraw Hill, Singapore Bodie, Z., Kane, A., and Marcus, A.J., 2007, Essentials of Investments, 6th Ed., McGraw Hill, Singapore E.M Tainer, 1998, Using Economic Indicators to improve investment analysis, John Wiley & Son, New York. What’s business? Wikipedia: “a legally recognized organization designed to provide goods and/or services to consumers “ Activity to “create money” in a responsible way What is the most valuable company today? CNN Money, 23 Oct 2009 Sales revenues USD 372.824 bio sales revenues Profit USD 40.610 bio profit Employees 107,100 employees Market Capitalization USD 60.42 bio USD 17.681 bio 91,000 market USD 353.23 bio capitalization USD 249.9 bio GDP Indonesia 2009 USD 629.244 bio !! (231 mio people@ USD 2,724) *GDP = consumption + gross investment + government spending + (exports − imports) US most valuable company CNN Money, 23 Oct 2009 Based on market capitalization 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Exxon Mobil: $353.23 billion Microsoft : $249.9 billion Wal-Mart : $194.3 billion Apple: $183.88 billion JP Morgan Chase: $179.84 billion Google: $175.93 billion Procter & Gamble : $167.3 billion Johnson & Johnson : $166.2 billion General Electric : $161.42 billion IBM : $159.08 billion Value chain evolution 70’s : COSTS + PROFIT = PRICE 80’s : PRICE – COSTS = PROFIT 90’s : PRICE – PROFIT = COSTS Now: SET TARGETS PROFIT – PRICE – COSTS Activities New product/process/project/plant/… plan Ongoing Replacement the existing tools Question: should we continue/realize or stop? What aspects should we consider to make the decision? In what extent an alternative is said to be feasible? Industries Manufacture Service feasibility studies can be done for both Different in product, process, problem faced, performance measurements, etc. Investing, what’s for? Investor: financial benefit Government: economic benefit (economic growth, increase GDP (gross domestic product), export, import substitution, etc) Community: social-economic benefit (jobs, public facilities, etc) Investment characteristics Capital intensive Long term period Usually need time before getting profit Resource constrained Risky wrong decision needs “money” and “time” to improve Steps of feasibility study Pre-evaluation study Non-capital analysis Feasibility study (bankable) Start by simplifying the problem (make necessary assumptions), if looks beneficial, make it in detail The top 10 risks for business Regulatory and compliance risk Global financial shocks Aging consumers and workforce The inability to capitalize on emerging markets (rapidly developing economies) Industry consolidation/transition Energy shocks Execution of strategic transactions Cost inflation Radical greening Consumer demand shifts Weighting of the top 10 strategic business risks across the sectors studied Who may use the feasibility report? Investor Funding resources, i.e. bank Partner(s) to be Benefactor (donor) Government