Term Paper

On
Feasibility Study of a project
(Project of building a Tunnel across the river)

Project Appraisal and Management

University of Dhaka
Executive Summary
A feasibility study looks at the viability of an idea with an emphasis on identifying
potential problems and attempts to answer one main question: Will the idea work and
should you proceed with it?

Before you begin writing your business plan you need to identify how, where, and to
whom you intend to sell a service or product. You also need to assess your competition
and figure out how much money you need to start your business and keep it running
until it is established.

Feasibility studies address things like where and how the business will operate. They
provide in-depth details about the business to determine if and how it can succeed,
and serve as a valuable tool for developing a winning business plan.

Feasibility studies aim to objectively and rationally uncover the strengths and
weaknesses of an existing business or proposed venture, opportunities and threats
present in the environment, the resources required to carry through, and ultimately
the prospects for success.[1][2] In its simplest terms, the two criteria to judge feasibility
are cost required and value to be attained.[3]

A well-designed feasibility study should provide a historical background of the

business or project, a description of the product or service, accounting statements,
details of the operations and management, marketing research and policies, financial
data, legal requirements and tax obligations.[1] Generally, feasibility studies precede
technical development and project implementation.

A feasibility study evaluates the project's potential for success; therefore, perceived
objectivity is an important factor in the credibility of the study for potential investors
and lending institutions. It must therefore be conducted with an objective, unbiased
approach to provide information upon which decisions can be based.
What is a Feasibility Study?

As the name implies, a Feasibility study is an analysis of the viability of an idea. The
feasibility study focuses on helping answer the essential question of “should we proceed
with the proposed project idea?” All activities of the study are directed toward helping
answer this question.
Feasibility studies can be used in many ways but primarily focus on proposed business
ventures. Farmers and others with a business idea should conduct a feasibility study to
determine the viability of their idea before proceeding with the development of a business.
Determining early that a business idea will not work saves time,money and heartache later.
A feasible business venture is one where the business will generate adequate cash-flow and
profits, withstand the risks it will encounter, remain viable in the long-term and meet the
goals of the founders. The venture can be either a start-up business, the purchase of an
existing business, an expansion of current business operations or a new enterprise for an
existing business. Information File C5-66, Feasibility Study Outline is provided to give you
guidance on how to proceed with the study and what to include.  Also, Information File C5-
64, How to Use and When to Do a Feasibility Study will help you through the process and
help you get the most out of your study.

A feasibility study is only one step in the business idea assessment and business
development process . Reviewing this process and reading the information below will help
put the role of the feasibility study in perspective.

Appropriate Areas of Focus

It is proposed that there are eight general areas of focus addressed by feasibility studies.

 Acceptability. This relatively common focus looks at how the intended individual
recipients—both targeted individuals and those involved in implementing programs
—react to the intervention.
 Demand. Demand for the intervention can be assessed by gathering data on
estimated use or by actually documenting the use of selected intervention activities
in a defined intervention population or setting.
 Implementation. This research focus concerns the extent, likelihood, and manner
in which an intervention can be fully implemented as planned and proposed, 6 often
in an uncontrolled design.
 Practicality. This focus explores the extent to which an intervention can be
delivered when resources, time, commitment, or some combination thereof are
constrained in some way.
 Adaptation. Adaptation focuses on changing program contents or procedures to be
appropriate in a new situation. It is important to describe the actual modifications
that are made to accommodate the context and requirements of a different format,
media, or population.7
 Integration. This focus assesses the level of system change needed to integrate a
new program or process into an existing infrastructure or program. 8 The
documentation of change that occurs within the organizational setting or the
social/physical environment as a direct result of integrating the new program can
help to determine if the new venture is truly feasible.
 Expansion. This focus examines the potential success of an already-successful
intervention with a different population or in a different setting.
 Limited-efficacy testing. Many feasibility studies are designed to test an
intervention in a limited way. Such tests may be conducted in a convenience sample,
with intermediate rather than final outcomes, with shorter follow-up periods, or
with limited statistical power.

Evaluate Alternatives

A feasibility study is usually conducted after producers have discussed a series of business
ideas or scenarios.  The feasibility study helps to “frame” and “flesh-out” specific business
scenarios so they can be studied in-depth.  During this process the number of business
alternatives under consideration is usually quickly reduced.

During the feasibility process you may investigate a variety of ways of organizing the
business and positioning your product in the marketplace. It is like an exploratory journey
and you may take several paths before you reach your destination. Just because the initial
analysis is negative does not mean that the proposal does not have merit.  Sometimes
limitations or flaws in the proposal can be corrected.
Pre-Feasibility Study

A pre-feasibility study may be conducted first to help sort out relevant scenarios. Before
proceeding with a full-blown feasibility study, you may want to do some pre-feasibility
analysis of your own. If you find out early-on that the proposed business idea is not
feasible, it will save you time and money. If the findings lead you to proceed with the
feasibility study, your work may have resolved some basic issues. A consultant may help
you with the pre-feasibility study, but you should be involved.  This is an opportunity for
you to understand the issues of business development.

Market Assessment

Also, a market assessment (Information File C5-30) may be conducted that will help
determine the viability of a proposed product in the marketplace. The market assessment
will help to identify opportunities in a market or market segment. If no opportunities are
found, there may be no reason to proceed with a feasibility study. If opportunities are
found, the market assessment can give focus and direction to the construction of business
scenarios to investigate in the feasibility study. A market assessment will provide much of
the information for the marketing feasibility section of the feasibility study.

Results and Conclusions

The conclusions of the feasibility study should outline in depth the various scenarios
examined and the implications, strengths and weaknesses of each. The project leaders need
to study the feasibility study and challenge its underlying assumptions. This is the time to
be skeptical.

Don’t expect one alternative to “jump off the page” as being the best scenario. Feasibility
studies do not suddenly become positive or negative. As you accumulate information and
investigate alternatives, neither a positive nor negative outcome may emerge.  The decision
of whether to proceed is often not clear cut. Major stumbling blocks may emerge that
negate the project. Sometimes these weaknesses can be overcome. Rarely does the analysis
come out overwhelmingly positive. The study will help you assess the tradeoff between the
risks and rewards of moving forward with the business project.

Remember, it is not the purpose of the feasibility study or the role of the consultant to
decide whether or not to proceed with a business idea. It is the role of the project leaders to
make this decision, using information from the feasibility study and input from consultants.
Go/No-Go Decision

The go/no-go decision is one of the most critical in business development.  It is the point of
no return.  Once you have definitely decided to pursue a business scenario, there is usually
no turning back. The feasibility study will be a major information source in making this
decision. This indicates the importance of a properly developed feasibility study.

Feasibility Study vs. Business Plan

A feasibility study is not a business plan. The separate roles of the feasibility study and the
business plan are frequently misunderstood. The feasibility study provides an investigating
function. It addresses the question of “Is this a viable business venture?” The business plan
provides a planning function. The business plan outlines the actions needed to take the
proposal from “idea” to “reality.”

The feasibility study outlines and analyzes several alternatives or methods of achieving
business success. The feasibility study helps to narrow the scope of the project to identify
the best business scenario(s). The business plan deals with only one alternative or
scenario. The feasibility study helps to narrow the scope of the project to identify and
define two or three scenarios or alternatives. The person or business conducting the
feasibility study may work with the group to identify the “best” alternative for their
situation. This becomes the basis for the business plan.

The feasibility study is conducted before the business plan. A business plan is prepared
only after the business venture has been deemed to be feasible. If a proposed business
venture is considered to be feasible, a business plan is usually constructed next that
provides a “roadmap” of how the business will be created and developed. The business
plan provides the “blueprint” for project implementation. If the venture is deemed not to be
feasible, efforts may be made to correct its deficiencies, other alternatives may be explored,
or the idea is dropped.
Reasons to Do a Feasibility Study

Conducting a feasibility study is a good business practice. If you examine successful

businesses, you will find that they did not go into a new business venture without first
thoroughly examining all of the issues and assessing the probability of business success.

Below are other reasons to conduct a feasibility study.

 Gives focus to the project and outline alternatives.

 Narrows business alternatives
 Identifies new opportunities through the investigative process.
 Identifies reasons not to proceed.
 Enhances the probability of success by addressing and mitigating factors early on
that could affect the project.
 Provides quality information for decision making.
 Provides documentation that the business venture was thoroughly investigated.
 Helps in securing funding from lending institutions and other monetary sources.
 Helps to attract equity investment.

The feasibility study is a critical step in the business assessment process. If properly
conducted, it may be the best investment you ever made.

Types of The feasibility study

Technology and system feasibility

The assessment is based on an outline design of system requirements, to determine
whether the company has the technical expertise to handle completion of the project. When
writing a feasibility report, the following should be taken to consideration:

 A brief description of the business to assess more possible factor/s which could
affect the study
 The part of the business being examined
 The human and economic factor
 The possible solutions to the problem
At this level, the concern is whether the proposal is both technically and legally feasible
(assuming moderate cost).
Legal Feasibility
Determines whether the proposed system conflicts with legal requirements, e.g. a data
processing system must comply with the local Data Protection Acts.
Operational Feasibility
Operational feasibility is a measure of how well a proposed system solves the problems,
and takes advantage of the opportunities identified during scope definition and how it
satisfies the requirements identified in the requirements analysis phase of system
development.[4]
The operational feasibility assessment focuses on the degree to which the proposed
development projects fits in with the existing business environment and objectives with
regard to development schedule, delivery date, corporate culture, and existing business
processes.
To ensure success, desired operational outcomes must be imparted during design and
development. These include such design-dependent parameters such as reliability,
maintainability, supportability, usability, producibility, disposability, sustainability,
affordability and others. These parameters are required to be considered at the early
stages of design if desired operational behaviors are to be realized. A system design and
development requires appropriate and timely application of engineering and management
efforts to meet the previously mentioned parameters. A system may serve its intended
purpose most effectively when its technical and operating characteristics are engineered
into the design. Therefore operational feasibility is a critical aspect of systems engineering
that needs to be an integral part of the early design phases. [5]
Economic Feasibility
The purpose of the economic feasibility assessment is to determine the positive economic
benefits to the organization that the proposed system will provide. It includes
quantification and identification of all the benefits expected. This assessment typically
involves a cost/ benefits analysis.
Technical Feasibility
The technical feasibility assessment is focused on gaining an understanding of the present
technical resources of the organization and their applicability to the expected needs of the
proposed system. It is an evaluation of the hardware and software and how it meets the
need of the proposed system[6]
Schedule Feasibility
A project will fail if it takes too long to be completed before it is useful. Typically this means
estimating how long the system will take to develop, and if it can be completed in a given
time period using some methods like payback period. Schedule feasibility is a measure of
how reasonable the project timetable is. Given our technical expertise, are the project
deadlines reasonable? Some projects are initiated with specific deadlines. You need to
determine whether the deadlines are mandatory or desirable.

Other feasibility factors

Market and real estate feasibility

Market feasibility studies typically involve testing geographic locations for a real estate
development project, and usually involve parcels of real estate land. Developers often
conduct market studies to determine the best location within a jurisdiction, and to test
alternative land uses for given parcels. Jurisdictions often require developers to complete
feasibility studies before they will approve a permit application for retail, commercial,
industrial, manufacturing, housing, office or mixed-use project. Market Feasibility takes
into account the importance of the business in the selected area.
Resource feasibility
This involves questions such as how much time is available to build the new system, when
it can be built, whether it interferes with normal business operations, type and amount of
resources required, dependencies, and developmental procedures with company revenue
prospectus.
Cultural feasibility
In this stage, the project's alternatives are evaluated for their impact on the local and
general culture. For example, environmental factors need to be considered and these
factors are to be well known. Further an enterprise's own culture can clash with the results
of the project.
Financial feasibility
In case of a new project, financial viability can be judged on the following parameters:

 Total estimated cost of the project

 Financing of the project in terms of its capital structure, debt equity ratio and
promoter's share of total cost
 Existing investment by the promoter in any other business
 Projected cash flow and profitability
The financial viability of a project should provide the following information: [citation needed]

 Full details of the assets to be financed and how liquid those assets are.
 Rate of conversion to cash-liquidity (i.e. how easily can the various assets be
converted to cash?).
 Project's funding potential and repayment terms.
 Sensitivity in the repayments capability to the following factors:
 Time delays.
 Mild slowing of sales.
 Acute reduction/slowing of sales.
 Small increase in cost.
 Large increase in cost.
 Adverse economic conditions.
Market research study and analysis
This is one of the most important sections of the feasibility study as it examines the
marketability of the product or services and convinces readers that there is a potential
market for the product or services. If a significant market for the product or services
cannot be established, then there is no project.
Typically, market studies will assess the potential sales of the product, absorption and
market capture rates and the project's timing.
The feasibility study outputs the feasibility study report, a report detailing the evaluation
criteria, the study findings, and the recommendations.

Importance of Feasibility Study

Feasibility study is needed by many people, especially for investors as the initiator,
the bank as lender, and also government as a provider of law and order legislation. Surely
the interests of all different from each other. Investor interest in order to know the level of
investment profits, bank’s interest to know the security level of credit provided and
facilitation of return, government emphasize the benefits of these investments for macro
economy, equal employment opportunities, etc. Given that future conditions will come filled
with uncertainty, it would require certain considerations.
In the feasibility study there are many aspects that must be studied and researched it’s
feasibility with purpose those study results are used to decide whether or not the project
or the eligible business is done or postponed or even canceled. This above to show that the
feasibility study will involve a lot of teams from various experts in accordance with its or
their respective aspects such as economists, law, psychologists, accountants, engineers and
other technology.
And feasibility studies are usually classified into two parts based on the expected
orientation by a company that is based on profit orientation, which is referred to studies
that focus on economic profit, and (not on the orientation of social profit), which is the
study meant that emphasize such a project can be executed and implemented without
considering the value or economic benefit.

Analysis of Various Aspects are Required

1. Marketing Aspect Analysis

In the analysis of the marketing aspect there are some components that must be analyzed
and examined, among them:
• Needs and wants of consumers;
• Market Segmentation
• Target;
• Value added;
• The product life;
• Market Structure
• Competition and competitors’ strategies
2. Production Aspect Analysis
Some element of production or operations aspects that must be analyzed include:
• Location operation
• Volume operations;
• Machinery and equipment;
• Raw materials and auxiliary materials;
• Labor force;
• Lay-out

3. Management aspects analysis
Several elements must be analyzed among other
• Ownership
• Organization
• Management Team
• Employees;
4. Financial aspects analysis
Components include the following:
• The need for funds;
• Source of funds;
• Projected balance sheet;
• Projected profit and loss;
• Projected cash flow
The true and accurate analysis to the aspects related in the preparation of this feasibility
study is to determine a feasible project or not to run.
The feasibility study needs our thoroughness in preparing it, for example, just to set
the business concepts necessary to run a comprehensive market research in order to
formulate and return a properrisk.

Therefore, the preparation of a feasibility study can not be regarded as insignificant for the
success of a business, so it an expert in the field and industry in accordance with the
business to be done.

Five Reasons Why You Must Conduct

Feasibility Study Before Starting a business:

1.  A feasibility study will help you to determine the profitability of the business venture.
Before starting a business, seasoned entrepreneurs and investors would want to know if the
business would be worth their time, effort and resources. It is worthwhile to know that
many entrepreneurs have abandoned solid business ideasbecause the profitability could not
be ascertained on conducting a feasibility study on the business idea.
2.  A feasibility study will help prove to the entrepreneur, venture capitalists, lenders and
investors the existence of the market, the liquidity of the business venture and the
expected return on investment.
3.  A feasibility study will help you identify the flaws, business challenges, strengths,
weaknesses, opportunities, threats and unforeseen circumstances that might affect the
success and sustainability of the business venture. Just like the case of my dad’s business,
the business failure and loss of money would have been avoided if we had carried out a
feasibility study. We simply jumped in based on someone’s recommendations because we
were flushed with cash and we paid dearly for it.
4.  Before starting a business, a feasibility study will enable you estimate the financial,
human and technological resources that will be needed to ensure the successful launching
of the business. Feasibility study helps to reveal the number and level of skill or unskilled
workers to be employed and their salary scale.

5.  Feasibility study will help you to determine the amount of capital required to start the
business. It will also help you in establishing the budget plan, working capital and cash flow
projections of the business

A Brief description about the main types of

Feasibility study:

TECHNICAL FEASIBILITY

Is It Technically Viable ?

A large part of determining resources has to do with assessing technical feasibility. It

considers the technical requirements of the proposed project. The technical requirements
are then compared to the technical capability of the organization. The systems project is
considered technically feasible if the internal technical capability is sufficient to support
the project requirements. 
The analyst must find out whether current technical resources can be upgraded or added to
in a manner that fulfills the request under consideration.  This is where the expertise of
system analysts isbeneficial, since using their own experience and their contact with
vendors they will be able to answer the question of technical feasibility.
The essential questions that help in testing the operational feasibilityof a system include
the following:
 Is the project feasible within the limits of current technology?
 Does the technology exist at all?
 Is it available within given resource constraints?
 Is it a practical proposition?
 Manpower- programmers, testers & debuggers
 Software and hardware
 Are the current technical resources sufficient for the new system?
 Can they be upgraded to provide to provide the level of technology necessary for the
new system?
 Do we possess the necessary technical expertise, and is the schedule reasonable?
 Can the technology be easily applied to current problems?
 Does the technology have the capacity to handle the solution?
 Do we currently possess the necessary technology?

ECONOMIC FEASIBILITY

Does the Project Contribute the Economy

Economic feasility is the process of determining whether a new venture is worth the cost
and time investment. It is also known as cost benefit analysis. This kind of analysis takes
into consideration the cost of both developing and operating the new venture. The practice
is a way of reducing the risk of trying new ventures. A wide array of factors is considered,
and if they show that the idea is cost effective, then it typically will be adopted. It is the
most frequently used method for evaluating the effectiveness of a new system. In economic
analysis the procedure is to determine the benefits and savings that are expected from a
candidate system and compare them with costs. If benefits outweigh costs, then the
decision is made to design and implement the system. An entrepreneur must accurately
weigh the cost versus benefits before taking an action.
Possible questions raised in economic analysis are:
 Is the system cost effective?
 Do benefits outweigh costs?
 The cost of doing full system study
 The cost of business employee time
 Estimated cost of hardware
 Estimated cost of software/software development
 Is the project possible, given the resource constraints?
 What are the savings that will result from the system?
 Cost of employees' time for study
 Cost of packaged software/software development
 Selection among alternative financing arrangements (rent/lease/purchase)

The concerned business must be able to see the value of the investment it is pondering
before committing to an entire system study.  If short-term costs are not overshadowed by
long-term gains or produce no immediate reduction in operating costs, then the system is
not economically feasible, and the project should not proceed any further. If the expected
benefits equal or exceed costs, the system can be judged to be economically feasible.
Economic analysis is used for evaluating the effectiveness of the proposed system.

The economical feasibility will review the expected costs to see if they are in-line with the
projected budget or if the project has an acceptable return on investment. At this point, the
projected costs will only be a rough

estimate. The exact costs are not required to determine economic feasibility. It is only
required to determine if it is feasible that the project costs will fall within the target budget
or return on investment. A rough estimate of the project schedule is required to determine
if it would be feasible to complete the systems project within a required timeframe. The
required timeframe would need to be set by the organization.

FINANCIAL FEASIBILITY

Can You Afford to Do It?

Purpose of a Financial Feasibility Study: A financial feasibility study

 how much start-up capital is needed,
 sources of capital,
 returns on investment,
 and other financial considerations.
 It looks at how much cash is needed, where it will come from, and how it will be
spent.

What is a Financial Feasibility Study?

A financial feasibility study is an assessment of the financial aspects of something. If this

case, for starting and running a business. It considers many things including start-up
capital, expenses, revenues, and investor income and disbursements. Other portions of a
complete feasibility study will also contribute data to your basic financial study.

A financial feasibility study can focus on one particular project or area, or on a group of
projects (such as advertising campaigns). However, for the purpose of establishing a
business or attracting investors, you should include at least three key things in your
comprehensive financial feasibility study:
 Start-Up Capital Requirements,
 Start-Up Capital Sources, and
 Potential Returns for Investors.

Start-Up Capital Requirements

Start-up capital is simply how much cash you need to start your business and keep it
running until it is self-sustaining. You should include enough capital funds (cash, or access
to cash) to run the business for one to two years.

Finding Start-Up Capital Funding Sources

There are many ways to raise capital for your business, but no matter what route you take,
investors are more likely to invest, banks are more likely to approve loans, and large
corporations are more likely to give you contracts, if you have personally invested into the
business yourself.

When you make a list of funding resources, be sure to include anything that you can
contribute to the business, including free labor. If you are starting a nonprofit organization,
your

Cash Flow Projection

A cash flow projection is a summary of the amount of cash flowing into and out of the
business over a given period of time, generally one year. It doesn't include non-cash
income, such as gain in value of assets, or non-cash expenses, such as depreciation. Monthly
or quarterly cash flow statements show the timing of cash flow into and out of the business.
This is critical in many agricultural and tourism based businesses as the income stream is
often seasonal.

Prepare a cash flow projection for at least the first three years of the proposed new
business. This takes you from the initial start up period, when you purchase extra supplies
and equipment, through to when the income starts coming in. The projection for the third
year usually assumes your business has achieved the sales targets you selected from your
market research. Think of the third year projection as a typical future year.

If your new venture will not generate a revenue in the first year, you will want to extend
the cash flow projection out to five, or even seven years. If you're considering saskatoon
berries, for example, fruit production doesn't start until the third or fourth year after
planting and the plants don't reach full production until at least six years after planting.
There are two ways to prepare a cash flow projection. The first method is called a whole
farm cash flow. Use this type of cash flow projection when the current farm business is
being altered or replaced by the new venture. This allows you to assess if the new venture
will generate enough income to cover family living costs, loan repayments, etc.

The second type of cash flow projection is based only on the new enterprise. This allows
you to examine whether the new enterprise can "stand on its own." You can also assess
whether it will make a positive contribution to your family income. Using the enterprise
cash flow projection allows you to compare two or more potential new enterprises.

Commercial feasibility

IS IT COMMERCIALLY FEASIBLE?

Determining commercial feasibility essentially means considering the various factors and
elements that are commonly required for a business to profitably sell the innovation to a
group of customers over a reasonable timeframe to justify the venture.  In simple terms, if a
business can’t achieve a sustainably profitable outcome from realising the
intended competitive advantage/s from the new idea’s implementation or selling the
innovation to customers, then it is generally unlikely to be a commercially feasible idea.

Assessing commercial feasibility needs to be distinguished from evaluating technical

feasibility in relation to new product development.  While a new idea or innovation may be
considered fit for its intended purpose this does not automatically mean the innovation will
be a commercial success.  Completing a technical feasibility is covered in the next section. 
Furthermore, evaluating the commercial feasibility of your idea should be
completed first and very early in the stages of your idea’s conception.

In the case of new product or service innovations there are generally three broad areas you
need to examine to help you decide whether your proposed innovation has the prospects
for commercial success.  To help you understand thescope of its potential, there are some
straight-forward questions you need to ask.  Generally speaking, if you answer ‘no’ to any
of the following questions you should explore in more detail the implications to the overall
feasibility of theinnovation.  Simply put, the answers to these questions will determine
how, when, why (and if) you move forward with the idea

The Whys and Wherefores of a Project

Feasibility Study

Project managers can cover the first four phases of the project cycle by conducting a
comprehensive feasibility study. The first part of this five-part series examines the role that
a feasibility study can play in any kind of organization.
Plenty of successful entrepreneurs have built businesses on the back of a napkin. Or, at
least, that’s how they tell the story. In reality, every good idea in a business must first
survive a rigorous project feasibility study. For many project managers, a feasibility study
represents the first four phases of the project cycle.
People love ideas. They come to us in the blink of an eye, or even in our dreams. Although it
can be tempting to tackle a compelling new idea head on, project management veterans
understand the importance of reviewing the opportunities and the challenges posed by a
project. Because project management professionals tend to focus on getting things done, it
can sometimes be hard to look at the overall viability of a new idea.
According to some business experts, only about one idea out of fifty has any real chance of
long-term success. Making sure your idea falls within that two percent success rate can
prevent time and resources from being devoted to a project that will probably fail,
regardless of the execution. A well-orchestrated project feasibility study provides the kind
of impartial analysis that can separate profitable ideas from unproductive brainstorms.

Facing the Challenges of a Project Feasibility Study

Often, the biggest source of criticism for a project feasibility study will come from the
person or the team that championed the idea in the first place. Strong leaders can develop
the ability to conduct a project feasibility study on their own ideas, since they have learned
how to make peace with the fact that not every idea deserves to be fully explored.

Summary: 
Feasibility studies contain comprehensive, detailed information about your business
structure, your products and services, the market, logistics of how you will actually deliver
a product or service, the resources you need to make the business run efficiently, as well as
other information about the business.

A project of building a Tunnel across a river:

Project Information:
A project of a Tunnel across the two shores of a river is being undertaken and it is expected that
the Project will be very much effective for the people living on two shores. It will minimize the
time because the distance is minimized. The likely investment on the project will be about 10
crore taka. It is expected to take 2 years for implementation of the project and the project is
expected to earn profits from the 3rd year onwards. The project duration is 7 years. The cost of
capital of project is 2%.

The profit, tax and the depreciation of the project is the following:

Year Profit(crore) Tax(Crore) Depreciation(Crore)

3 1.5 .5 1
4 2.5 .8 .85
5 2.25 .7 .7
6 2.5 .8 .55
7 2.75 .9 .4

Feasibility Study of the project :

Following is the Feasibility study of the project

 Financial Feasibility
 Technical Feasibility
 Commercial Feasibility
 Economical Feasibility
Financial Feasibility of the project
Financial Analysis can be done by two categories:

Non-discounted Cash flow Technique

1) Pay Back Period Method(PB)

2) Accounting Rate of Return(ARR)

Discounted Cash flow Technique

1) Net Present Value

2) Internal Rate of Return
3) Return on Investment

1.Pay Back Period Method:

Pay Back Period is defined as the length of the time required to recover the original investment
of the project.

Calculation for Pay Back Period:

CFAT = Profit - Tax + depreciation

Year Profit Tax EAT Depreciatio CFAT Cumulative

(Crore) (Crore) (Crore) n (Crore) Cash Flow
(Crore)
3 1.5 .5 1 1 2 2
4 2.5 .8 1.7 .85 2.55 4.55
5 2.25 .7 1.55 .7 2.25 6.8
6 2.5 .8 1.7 .55 2.25 9.05
7 2.75 .9 1.85 .4 2.25 11.3
The initial investment of 10 crore taka is likely to be received after the 6th year. (i.e., four years
after the project implementation period).
10−9.05
Payback period = 4years + *12 month
11.3−9.05
= 4 years + 5.06

= 4 years and 5 months

So, the pay back period of the project is 4year and 5 months.

2. Net Present Value Method:

The difference between present value of all future cash inflow and present value of all cash
outflow.

NPV must be positive for acceptability of the project.

Net Present Value= PV of Cash inflow- PV of Cash outflow

Here we know ,

Investment of the project: 10 crore

Life of the project: 7 Years
Period of implementation: 2 Years
Cost of Capital : 2%
3rd 4th 5th 6th 7th

Cash 2 2.55 2.25 2.25 2.25

inflow

Calculation for Net present value :

Year Cash inflow PVF (2%) PV of cash inflow
(crore) (crore)
3 2 .9423 1.89
4 2.55 .9238 2.36
5 2.25 .9057 2.03
6 2.25 .8880 2.00
7 2.25 .8706 1.96
Total 10.24

NPV= PV of cash inflow- PV of cash outflow

= (10.24 - 10) crore

= .24 crore

Accept Reject Criteria:

The net present value is positive and hence the project should be accepted.

3. Internal Rate of Return:

When PVF is 2 %, then NPV= 0.24 Crore taka. (From the NPV calculation)

When PVF is 5% then,

Year Cash inflow PVF (5%) PV of cash inflow

(crore) (crore)
3 2 .8638 1.73
4 2.55 .8227 2.09
5 2.25 .7835 1.76
6 2.25 .7462 1.68
7 2.25 .7107 1.60
Total 8.86

NPV= PV of cash inflow- PV of cash outflow

= (8.86- 10) crore
= - 1.14 crore taka

IRR:

C
A+ C−D (B-A) Where,

A= Lower rate
B= Higher rate
C= Higher value
D= Lower value
.24
IRR= 2% + (5-2) %
.24+1.14

=2. 52%

So, the internal rate of return of the project is 2.52%

Accept Reject Criteria:

The internal rate of return is more than the cost of capital (2%) hence the project should be
accepted.

4.Return on investment:
Total Profit
ROI = Total Cost

11.3
= 10

= 1.3

After analyzing the project we say that the project is accepted as it has the following

 Positive NPV
 ROI is also effective in nature.
 IRR exceed the cost of capital.

Technical Feasibility

1) Latest technology has used

2) It’s a proven technology
3) The technology is available indigenously
4) There is no import restriction and is available freely

So the project is Technically Viable.

Economic Feasibility

1) Use locally produced raw material like wood, iron etc

2) Save the passenger’s time as it consists less duration and better route.
3) Produce a satisfactory return so it contribute in the GDP of the country.

So the project is Economically Viable.

Commercial Feasibility

The project must be commercially viable or feasible.

1) There is no other better option for crossing the river so it is accepted by all the people.
2) The present Boat journey is so time consuming, so the people will use the tunnel for
lessening their time.

So the project is Commercially Viable.

Conclusion
Whenever a project is undertaken, it should be essential to implement the project either it is
feasible or not. If it is not feasible then the project is rejected. In the project we analyzed by
using four main criteria of project feasibility. In financial feasibilityI used payback period, Net
Present Value, Internal rate of return and Return on investment. In all the cases I determine that
whether it is feasible or not. In NPV the project is positive and ROI is also prefect. In technical,
economic and commercial feasibility I just focused that either the project is viable or not. The
project technology, raw material price and its availability is also being measured. After all the
determination of the feasibility it has to be say that the feasibility test of the project is sound and
the project must be taken.