SDG Business Case
Nature based solution projects
Table of Contents
Investment project calculation. 5
- Cost and benefits analysis, NPV and IRR. 5
- Relative merits of alternative sources of liquidity and project finance. 8
- Trading profit and loss account 8
Introduction
In this report, we will demonstrate the progressive understanding of key practices, principles and concepts of project appraisal and finance in the context of development. We will demonstrate the radical knowledge of the valuation of benefits and cost of the project and develop the cash flows of the project in the variability of contexts of segments. We will also determine how to interpret and prepare the financing plan of the project including scheduling of loan repayment. We will understand the particular profitability concept and how we could calculate the income statement of the project. We will also demonstrate the progressive understanding of particularly how to integrate social and environmental externalities and also connections into the process of decision-making of the project. We will also explain what particular approaches could be utilized for including environmental implications in the project appraisal (Babalola and Abiola, 2013).
Approaches used for including environmental impacts for the appraisal of the project as well as strengths and limitations of the project
The approaches that could be utilized for including environmental implications in the project appraisal are given below:
- Financial Analysis – It compares the financial benefits and costs of those straightly concerned. In this approach, the financier or entrepreneur or developer is mainly concerned with the financial costs that mainly he has to tolerate and the fiscal advantages for mainly which he could charge. The profitable value of the latter can be impacted by off-place repercussions, mainly as where the congestion of the road network surrounding the centre of shopping can discourage consumers or particularly where pollution of the usual environment from the industrial procedure can weaken the attraction to supply of labour. The price of adding a network of roads or improvement of a particular source of environmental pollution can affect the estimates of cost (Babalola and Abiola, 2013).
- Social Financial Analysis – It mainly compares the benefits and costs also to some other particular parties directly included, for instance, the entrepreneur or developer can be significantly interested also in the impacts for the occupier or financier, and also the government in financial impacts on the distinct budgets of the department. In the instance that is given, the industrialist, financier, entrepreneur or developer would be very interested in the impact on his value of the project of environmental implication on the eventual users, and particularly will be very interested in tracing through the implications on them. These can be interpreted back into variations in the fiscal payments like purchases, sales and rent that may be created by the tenants, to the disadvantage of the particular promoter.
The requirement for this particular assessment may also rise in the main program of the Department of Health (local or central government) in the given manner: the closing of the hospital will range the list of waiting of those who mainly need treatment that leading to consequences on the social or welfare services of security to which all patients will be engaged awaiting the recovery. Therefore socio-economic implications can be required for being explored (Chen, et al., 2013).
- Cost Revenue Analysis – It is utilized by central or local governments for comparing the fiscal costs they require for finding out all taxes, with financial revenues which will result. Since the relevant value valuations from the growth are the function of all value of rents, rents of occupation of any innovative requirements of development to be mainly considered by the metropolis. Where this will be damaged by severe environmental implications for instance from the placement of residential zones where there will be severe graphic) the environmental valuation could assist in illuminating the consequences and display probable directions for improvement or in the severe case, the requirement for finding distinct locations.
- Cost-benefit analysis – It is utilized by promoters of particularly community projects, where all the costs are not merely fiscal but economic, that is mainly the accurate resource which will decrease upon the economy and also the definite net advantages to the society. Associated with mainly private industrialists, developers and so on, the communal developer is classically bound to value the advantage of the organization as per incommensurable intangible, unpriced or non-market measures. In projects of transportation, for instance, the advantages are the savings to the particular users, in operating cost and time and to the particular societies in main accidents (Chen, et al., 2013).
These advantages or disadvantages could be assessed by the utilization of affect valuations on the users of the medical and the road and services of policies involved in managing outcomes of accidents and incidents. While these advantages or disadvantages linked with users of the road, the method has been prolonged to those rotten the road, particularly to noise, graphic advent etc.
- Social cost-benefit analysis – This mainly follows the similar approach as analysis of cost-benefit, but into the assessment will come then not just the direct benefits and costs to the promoting expert, but also that one’s would be particularly experienced in actual relations by others. Through the similar token mainly as with social fiscal analysis, the particular approach is protracted afar the promoter to some others directly impacted. In transportation over, the outline of proposals for the road could have consequences for the utilization of the competitive railways and underground. This would need implications valuations in standings of traffic on these some other methods (Boyko, et al., 2021).
- Community impact analysis – This particularly the principles of social cost-benefit analysis and cost-benefit analysis, however, modified to be of utilization to planning establishments, for enabling them for considering from the interest of the public full the benefits and costs of those particular sectors or segments in whom complete implications would drop indirectly or directly. As the particular name indicates, the focus here is mainly on the entirety of the implications on the society and thus the requirement for extending the implication valuation to complete accurate site-off consequences, therefore that these all could be considered effective in the production of the particular project. For this main purpose, the study takes complete benefit of the fertility of implication assessment and as it handles the widest probable display, it can embrace also the slenderer tactics given that all the particular methods are implemented on the same principles in the analysis of cost-benefit (Boyko, et al., 2021).
Investment project calculation
a. Cost and benefits analysis, NPV and IRR
| Year | 1 | 2 | 3 | 4 | 5 |
| Units | 61000 | 67100 | 73810 | 73810 | 73810 |
| Price | 2.6 | 2.6 | 2.6 | 2.6 | 2.6 |
| Income | 158600 | 174460 | 191906 | 191906 | 191906 |
| Depreciation on the land & building | 5000 | 5000 | 5000 | 5000 | 5000 |
| Depreciation of the machinery and equipment | 24750 | 24750 | 24750 | 24750 | 24750 |
| Depreciation of the furniture | 1000 | 1000 | 1000 | 1000 | 1000 |
| Depreciation on vehicles | 4000 | 4000 | 4000 | 4000 | 4000 |
| Fixed cost | 6000 | 6000 | 6000 | 6000 | 6000 |
| Total | 40750 | 40750 | 40750 | 40750 | 40750 |
| Profit | 117850 | 133710 | 151156 | 151156 | 151156 |
| Total income | 705028 | ||||
| Initial costs | 203750 | ||||
| Benefit in excess | 501278 |
It can be observed that the costs are lesser than the income, so this project can opt for the investment. In this, there are main benefits above $501,278.
NPV and IRR
| Years | Cashflows |
| 0 | -230000 |
| 1 | 158600 |
| 2 | 174460 |
| 3 | 191906 |
| 4 | 191906 |
| 5 | 191906 |
| Discount rate | 10% |
| Net present value | 411616.69 |
| Internal rate of return | 70% |
Net Present Value (NPV) – The net present value is mainly utilized for calculating the present sum value of the upcoming brook of payments. Hence, if the net present value of the investment or project is positive, it means that the reduced current value of complete upcoming cash flows associated with that particular investment or project will be significantly positive and attractive also. It is mainly calculated by taking the variation between the current values of inflows of cash and the current value of outflows of cash over a particular time. As the name recommends, the net present value is mainly just nothing but is net off particularly of the current value of outflows and inflows of cash by accurately discounting complete flows at the particular rate. Here, the net present value is positive which is 411616.69 and the company can consider this project (Goedhart, et al., 2015).
When the manager requires comparing projects and then decides which ones for pursuing, usually three options are available there: method of payback, NPV and IRR. It is said that NPV is the main tool of choice for various analysts of finance. Two reasons are there for that, the first is that net present value considers the particular time value of money and the second is that it gives the actual numbers that all managers could utilize for comparing the initial expenditure of cash mainly against the current value of the return. Managers also utilize net present value for deciding whether to make some major purchases, like software or equipment. It is also utilized in acquisitions and mergers. If the organization is utilizing dollars of today’s time for upcoming returns then the net present value is the best choice.
Internal rate of return (IRR) – The internal rate of return is the metric utilized in fiscal analysis for estimating the profitability of some possible investments. The internal rate of return is the rate of discount that particularly makes the net present value of complete cash flows equivalents to zero in the discounted analysis of cash flows. Calculations of internal rate of return mainly depend on a similar formula as of net present value. It is mainly calculated by accurately taking the variance between the expected or current value and also the actual beginning value that is divided by the original value and then multiplied by 100. Here the internal rate of return is 70% which is very appropriate and the company can consider this project (Goedhart, et al., 2015).
If the internal rate of return is higher, then it is profitable for the organization to undertake investments. The internal rate of return is particularly even for all investments of fluctuating kinds and, as such, could be utilized for ranking multiple forthcoming projects or investments on a comparatively uniform basis. In ordinary, when accurately comparing options of investment with some other same features, the significant investment with the great internal rate of return possibly would be mainly considered the very best.
b. Relative merits of alternative sources of liquidity and project finance
c. Trading profit and loss account
| Profit before tax | 117850 | 133710 | 151156 | 151156 | 151156 |
| Tax @40% | 47140 | 53484 | 60462.4 | 60462.4 | 60462.4 |
| Profit after tax | 70710 | 80226 | 90693.6 | 90693.6 | 90693.6 |
Trading Profit and Loss account – It forms mainly part of the financial statements of the business and also shows whether it has lost or made money. It particularly summarizes the outcomes of trading of the business over the period showing mainly both the expenses and revenue. In short, the trading profit and loss account is mainly the ‘snap shot’ of the liabilities and assets of the business at a specific period.
These fiscal statements are essential for any kind of business. Key decisions of the business are taken by the managers or owners are frequently based on these statements. All figures or numbers are included on entire documents like fiscal applications and returns of tax and could impact relationships with suppliers, consumers and investors.
The trading profit and loss account only show transactions of revenue that are mainly linked with the trading activities of the businesses. This particularly means that incomes like grants and cash inserted by the business owner and loans of the bank received are normally not displayed here. Any of the purchases of a particular tool, repayment of the loan, payments of customs, the revenue of human resources and drawings would not be displayed either. All these things will impact the balance sheet.
The additional information that can be seen is that the cost-benefit analysis is done according to the discount rate.
Conclusion
By this study we conclude that the company should consider this project as the net present value of the project is positive and the internal rate of return is also good.
References
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Chen, H., De, P., Hu, Y. J., and Hwang, B. H., 2013. Customers as advisors: The role of social media in financial markets. Working paper. https://www.krannert.purdue.edu/academics/MIS/workshop/papers/HC_01202012_2.pdf
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