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2. Investment Analysis

2. Investment Analysis. Initial costs breakdown and estimates, contingencies, working capital, project financing, equity, loans. Overview. 2.1 Estimating Investment Costs 2.2 Working Capital Requirement 2.3 Project Financing 2.4 Calculating Loans 2.5 Depreciation & Booked Value.

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2. Investment Analysis

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  1. 2. Investment Analysis Initial costs breakdown and estimates, contingencies, working capital, project financing, equity, loans Investment Analysis

  2. Overview • 2.1 Estimating Investment Costs • 2.2 Working Capital Requirement • 2.3 Project Financing • 2.4 Calculating Loans • 2.5 Depreciation & Booked Value Investment Analysis

  3. Estimating Investment Costs • Investment breakdown, buildings, equipment, other • Contingencies and uncertainties • Three point estimation method: • optimistic • most likely • pessimistic Investment Analysis

  4. Face the facts! Investment Analysis

  5. Investment Analysis

  6. Three Point Estimate: a, m, b • Assuming a Beta probability distribution • Expected value of each item t = (a+4m+b)/6 • Variance of each item v = [(b-a)/6]^2 • Expected Total T = Sum of Exp. values t • Variance of Total V = Sum of Variances v • Standard Dev. of Total S = sqrt(V) • Upper/Lower Limits = T +/- Z*S • Z = Confidence Coefficient Investment Analysis

  7. Confidence Coefficients • Confidence Level Coefficient Value Examples 90% 1.28 95% 1.65 98% 2.05 99.9% 3.09 Investment Analysis

  8. Investment Analysis

  9. Shall we slow down? Investment Analysis

  10. Working Capital Requirement • Inventory build-up • Slow starting projects • Other initial costs (Loan Management Fees etc) • Cash Flow (debtors) Investment Analysis

  11. Project Financing • Equity and other funding from shareholders • Loans and other forms of financing from others • Equity Ratio vs Loan Terms Investment Analysis

  12. Investment Analysis

  13. Calculating Loans • Repayment schedules, loans interests • Annuity loans, bullet loans, ... • Loan Management Fees Investment Analysis

  14. Investment Analysis

  15. Investment Analysis

  16. Depreciation & Booked Value • Depreciation Schemes • Straight Line Depreciation • Booked value of fixed assets Investment Analysis

  17. Investment Analysis

  18. Investment Analysis

  19. Are all expenses necessary? Investment Analysis

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