Feasibility and viability of traditional fixed assets of NPV
feasibility analysis of fixed assets, the traditional
Abstract This paper discusses the feasibility of investment in fixed assets analysis of
the importance and content of the feasibility of proposed projects is the core of the
economic evaluation of fixed assets, and the assessment can be used both static and
dynamic evaluation. The most commonly used by general in the dynamic evaluation
index - definition of NPV, formula and other decision-making rules and benefits,
contact actual cases, analysis of the traditional net present value of fixed assets in the
practical feasibility of the application, indicating that the current situation of NPV
exists. Then turn the current situation of the actual environment that the traditional
NPV of the three existing limitations, including the risk discount rate and larger net
cash flow be difficult to ensure, to the neglect investment in the project management
decision-making flexibility Ji Flexible value, does not consider the delay of the
project that ignores the investment value of waiting, and the limitations put forward
suggestions for improvement can be solved, such as the discount rate in the 风险报
酬率 be identified and modified, making use of options thinking, etc. .
conclusion of this article fixed assets of the company's actual project feasibility
analysis, with a good reference and reference value.
Keywords: feasibility analysis, net present value, decision-making flexibility, wait
for the value, select the option
isonproperty, plantandequipment (P, P &amp; E)
-value (NPV) methodincludingitsdefinition, computingformula,
od 'sapplicationtothefeasibilityanalysisonP, P &amp;
thecompanycanhaveabetterfeasibilityanalysisonproperty, plantandequipment (P, P
Keywords: feasibilityanalysis, net-present-value, decision-makingflexibility,
directory of a
preamble ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
review ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 1
3, the theoretical feasibility analysis of fixed assets
described ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? This paper from www.5udoc.com
[worry documentation] to collect and organize, for the original author! ; ? 2
(a) the feasibility study of the importance of
the ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 2
(2) the feasibility study the contents of
the ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 2
(c) of NPV introduction ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 3
studies ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 4
Profile ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 4
(b) of the
case ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 4
studies ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 4
5, the limitations of NPV and improvement
suggestions ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 9
Limitations ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
(b) recommendations for
improvement ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
6, conclusions ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? This paper from
www.5udoc.com [worry document] collection with the order, thank the original
author! 226; ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 13
source of information and
references ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 13
1, the preamble
for the definition of investment, in short, investment is an "input now "and" future
earnings "exchange between. Input is actually now at the expense of some current
consumption and future income is more substantial for the future consumption. The
concept of investment, you can understand from four aspects: (1) Investment is now
asset investment (expenditure); (2) has been concentrating on investment; (3)
investment in risky; (4) the nature of investment is to obtain the expected earnings.
Clearly, the investment motive and the purpose of obtaining income.
company's fixed assets investment in the enterprise in the development process
visible through investment projects to expand production scale and production of new
products, by increasing production, reducing costs to obtain a certain return on
investment. Enterprise fixed assets is an important material production and
management activities based on the value of its units of large effect for a long time
put into production, can play a role in a longer period, if the right investment,
businesses can benefit in the longer period, if investment errors, enterprises can hardly
be changed again in the near future, companies making investment in fixed assets, we
must advance a substantial amount of money one time, while the recovery of such
advances is the use of the assets during the next successive phases to achieve.
Construction of fixed assets with fixity, dedicated and single sex characteristics.
Determine the characteristics of fixed assets investment in fixed assets with greater
risk, but companies can not avoid risk rather than as investment in fixed assets.
investment in fixed assets in order to avoid making mistakes, companies must focus
on fixed asset investment strategy, to strengthen the management of investment in
fixed assets. Fixed assets investment strategy focuses on investment in fixed assets in
advance of the scientific feasibility of the project forecasts and verification. The
feasibility analysis is essential to the project economic benefit analysis,
decision-making in many indicators, there is no doubt that the net present value (NPV)
is the most familiar and widely used.
This article attempts to traditional net present value of fixed assets used in the
feasibility analysis, verification of its fixed assets investment decision-making role.
Therefore, the purpose of this paper is actually an empirical analysis, that analysis of
actual cases the use of NPV, net present value method to verify the feasibility analysis
of the role of economic forecasting. Meanwhile, the article also pointed out that under
the current NPV still some deficiencies and made recommendations for improvement.
This article is divided into the following sections: The introductory part is the
contents of this paper, describes the purpose and meaning; followed by review of the
literature at home and abroad; The third part is a theoretical explanation, including
feasibility analysis the importance and feasibility of the content and presentation of
NPV, net present value method described in the definition, formula, and the
advantages compared with other methods; the fourth part of the case studies, on 2 sets
of 600,000 kilowatts coal generator projects a case study; the fifth part of the
traditional net present value method that is currently experiencing some of the
challenges and limitations, and recommendations; the last is the conclusion.
2, Literature Review
feasibility analysis for the fixed assets of the theory expounded, there are a lot of
classical literature at home and abroad, especially in the last century the market
economy after 90 years, since an upsurge of business fixed investment boom and
domestic have begun to study the feasibility of fixed assets from the theory of
inflammation in the Tang Fei, Yang Qing edited the "feasibility study and investment
decisions" on the proposed feasibility analysis of the importance of fixed assets: the
feasibility of investment in fixed assets project the most important part of preliminary
work. It is the investment decision before the construction project on a comprehensive
technical and economic analysis and appraisal of the scientific method and the work
stage. The same time, Xu Qiang, Dong Zhengxin edited the "investment project
evaluation," also noted that the general fixed assets of industrial enterprises in the
project feasibility analysis needs to include the 10 elements, 10 elements that can
basically be summed up as market research, technical research and Benefits The three
most. These classic elements not only in theory expounded on the importance of
analyzing the feasibility of fixed assets, are in practice used by many enterprises.
net present value method in the study of traditional analysis, a number of foreign
books on management accounting and information are mentioned in the definition of
net present value method, calculation methods and internal rate of return wears
compared with the advantages of post- , as in RayH.Garrison &amp;
EricW.Noreen, "ManagerialAccounting (EighthEdition)" that "Management
Accounting (Eighth Edition)" in reference to calculate cash flow NPV is important,
not the concept of accounting net income, and also cited a very vivid example to help
understand the process of computing the net present value, and also compared the net
present value and internal rate of return method, pointed out that the net present value
method to calculate internal rate of return than the simple, no trial and error process;
to consider the risks factors be reflected in the discount rate; and to provide an
internal rate of return than the method more useful information to policy makers, to
help policy makers make the right decisions.
large number of domestic and foreign literature such as Sun Yuanxin edited the
"investment project evaluation theory, method and cases" of all that can be fixed using
net present value of the investment project feasibility analysis and evaluation to
estimate the benefits, this identity that view.
research paper chose to analyze the feasibility of NPV on the role of reason: First of
all, the production of NPV has been for some time, domestic and foreign literature for
a detailed description of its ; Second, so far, the enterprise benefits by the net present
value method, prediction and evaluation of fixed assets still exist, this case has the
typical selection; Third, the calculation of NPV more simple, there are algebraic
formula can be applied, and the predicted results would be better. Fourth, while most
documents are confirmed the feasibility of the traditional net present value of fixed
assets of De role, but this paper, the traditional net present value of further study and
found that NPV law also defective, you can by with "Options and Financial Risk
Management" and the "financial management" option mentioned in the concept of
combining with other methods, to improve the fixed assets in the analysis of the
economic feasibility analysis.
construction company operated by the national authorities approved two sets
600,000 kilowatts coal-fired generating units, that of the original Wu Jing Power Plant,
Phase, after the project put into production , by the company management and sales of
its electric power and energy and ancillary products. 2 sets of 600,000 kilowatts
coal-fired generator power plant project is located in the south of the original Wu Jing,
Zheng allocated about 89 hectares of land, a planning and design 4 sets of 600,000
kilowatts coal-fired units, the current construction of the first 2 sets, total investment
is about 6.6 billion yuan. One boiler, turbine, generator and other main equipments are
imported foreign technology, the Shanghai Electric (Group) Corporation subsidiary of
Shanghai Turbine Works, Electrical Works, boiler plants, etc. of a manufacturing. The
project is a major and get the building project in Shanghai is Shanghai "during the"
number one power construction projects. The project has received many honors two
units: in December 2001, 1,2 East Unit to participate in competition with the type of
unit counterparts by winning awards; 2001,2002 Unit 1 for two consecutive years by
the National Power Company as a "welcome peak aestivation prize "; two units of
construction period in 2002 by the National Power Company as quality works.
3, the theoretical feasibility analysis of fixed assets described
(a) the feasibility study of the importance of the
feasibility analysis of fixed assets, is the investment decision-making before, on with
the fixed assets related to the social, economic and technical aspects in-depth research;
on the possible development of technical solutions and construction program for
serious technical and economic points this paper from www.5udoc.com [worries
documentation] to collect and collate, thank the original author! Analysis and
comparisons; cost of fixed assets after the completion of scientific prediction and
evaluation. On this basis, the comprehensive study of advanced and applicable
technologies in fixed assets, economic rationality and efficiency, as well as the
possibility and feasibility of investment in order to determine whether the fixed assets
should be invested and how to invest or not invest in this suspension or continue to
invest to make it into the next stage of development and construction, etc., for the
investment in fixed assets to provide reliable scientific basis for decision-making and
a basis for carrying out further work.
short, fixed assets, including feasibility analysis of technical feasibility and
economic benefits of, the technical feasibility mainly by corporate technology
departments, the economic benefits of argumentation, the main by the Corporate
Finance department. The main task of the feasibility of long-term planning in
accordance with national and regional, industry planning requirements, projects on
investment in fixed assets investment program planning, engineering, technical
demonstration, social and economic impacts, forecasting and organizational analysis,
through a wide range of computing , analysis, demonstration and evaluation, fixed
assets and provide a reliable basis for investment decisions and recommendations.
Therefore, the feasibility of investment in fixed assets is to ensure that fixed assets
investment projects with minimum investment cost to achieve the best economic
results of the scientific method, but also to achieve fixed-asset investment in
technologically advanced and economically reasonable and viable development of
(2) the feasibility study the contents of the
feasibility analysis of fixed assets investment in fixed assets in-depth and detailed
technical and economic feasibility of the program long on the basis of comparison and
selection, made the final investment in fixed assets decision concluding observations.
Thus, its content should be able to meet the fixed asset investment as an important
basis for decision-making basis and requirements.
general industrial fixed assets investment projects, feasibility analysis, including the
following 10 aspects:
) General: Review of project profiles, feasibility analysis, and problems of the main
conclusions and recommendations. Clear demonstration of the recommended plan in
the course of the important controversial issues and had different opinions and
viewpoints, and investment projects, the list shows the main technical economic
indicators; should also explain the background of proposed investment projects,
investment environment, the need for investment and economic significance of
investment role and importance of the national economy; proposed research project is
based primarily on the scope and requirements; explain the historical development of
the project profile, project proposal and the approval document.
) Product market demand and the proposed scale: investigating the recent domestic
and international market demand; domestic production capacity is estimated that
existing projects; sales forecasts, pricing analysis, product competitiveness, the
prospect of access to international markets; fixed asset projects size, choose the
direction of product development programs and technical and economic comparison
) Resources, raw materials, fuel and utilities: The raw materials, auxiliary materials,
fuel type, quantity, quality and the sources and the possibility of supply; toxic,
hazardous and dangerous goods, the type, quantity, storage and transportation
conditions; the required power (water, electricity, gas, etc.) the number of common
facilities, modes of supply and supply conditions.
) Site selection: an item of fixed location, and sources of raw materials and products
from the market, local conditions.
) Project design: the construction sites in selected within the general plan and
transportation design, multi-program comparison and selection, to determine the
composition of the scope of the project.
) Environmental protection and labor safety: Environmental Investigation. The
proposed project "three wastes" types, composition, quantity, environmental impact
prediction; treatment options and recovery program utilization; labor protection and
safety and health; urban planning, program requirements, and corresponding
) Organization and personnel training: production management system, institutional
settings, the options argument; engineering and management quality and quantity
requirements; staff training cost estimates.
) Project construction plan and schedule requirements: According to the survey and
design, equipment manufacturing, construction, installation, testing, production time
and the progress of the request, select the project implementation plan and general
schedule, with line diagrams and network diagrams to express the most good
) Economic impact analysis and evaluation: The total investment costs, the estimates
of capital expenditure and working capital; funding sources, raising methods, the
proportion of various sources of funding; the number and cost of capital funds; the
total cost of production , unit production cost is calculated, the financial internal rate
of return, net present value, payback period, fixed asset investment loan repayment
period, foreign exchange effect analysis, uncertainty analysis, evaluation and
economic benefits of financial efficiency and conduct social analysis and evaluation
0) Evaluation and Conclusion: The comprehensive analysis of program evaluation
and program selection, the use of the data, from a technical, economic, social,
financial and other aspects discussed the feasibility of investment projects,
recommend one or several possible options for decision making, for investment
problems and concluding observations.
can be seen that the feasibility analysis of fixed assets investment projects can be
summarized as the basic contents of three parts:
first, market research, including products, market research and forecasting, which is
a pre-feasibility analysis conditions and prerequisites, which determines the need for
investment is an important basis for the establishment of the project.
, followed by technology, that technology research programs and construction
conditions, from the allocation of resources, building address, the techniques,
equipment and start production organization and other issues, this is the technical
basis of feasibility analysis, which determines the investment in technology viability.
final benefit study is that the economic and social benefits of the analysis and
evaluation, it is the key to determine the fate of the project investment, and therefore
fixed the core part of project feasibility analysis, and describe the project
economically "reasonable sex. " Three aspects of this feasibility analysis is conducted
on the optimization of investment projects, and provide the scientific basis for
(c) of NPV introduction
can see from the above, fixed assets, project feasibility analysis is the core of the
benefits of research, analysis of the most important of which is the project's financial
benefits assessment The evaluation can use static and dynamic analysis and other
methods. Investment in fixed assets and other indicators of long-term investment
decisions are considered according to the time value of money can be divided into two
categories: static and dynamic indicators index. Static indicators, including payback
period, the average return on investment, it is the economic evaluation of investment
projects, do not take into account the time value of money, but to different points in
time as the same amount of money, is a non-discounted Evaluation Methods; dynamic
indicators such as net present value, profitability index, meaning return rate, which is
considered the target time value of money to discount the analysis and assessment
methods to better reflect the situation and grasp the objective reality of the modern
investment decision widely used method. As a dynamic indicator of the net present
value analysis is a very important evaluation.
net present value (NPV) refers to the investment project from the beginning to the
end of the year the project's net cash flows discounted at a certain discount rate for the
present value of the initial investment. It shows that the entire project life cycle, after
taking into account the time value of money, the performance of the net present value.
We can say that it is a study period of investment profitability in the calculation of the
absolute indicator. Net present value shows the bigger the better the economic
benefits of the project, which is calculated as:
which NCF - the first year net cash flows t = s t-year cash flows - the first t years
i - scheduled discount rate
n - Investment involves the number of years
The decision rule for NPV is zero or positive net present value with those of the
investment program, to give up negative net present value of the investment program.
first, the net present value is positive, that the return on investment was greater than
the expected return on that investment is feasible; second, the net present value equal
to zero, that the rewards for investment projects rate equal to expected returns, also
shows that investment is feasible;
third, the net present value is less than zero, that the return on investment projects
were less than the expected return on that investment program is not feasible.
net present value method has the advantage, taking into account the time value of
money, given a single payment that the present value of economic significance clear;
followed by the net present value method is simple, not when the internal rate of
return method required trial and error process, the third is a more realistic net present
value method, the discount rate i by the level of risk to consider the impact; the fourth
is the net present value method provides more useful information to decision makers.
we know, the dynamic indicators are mainly net present value, profitability index,
internal rate of return of three, in the three evaluation methods, net present value of its
sound and realistic reinvestment rate, in theory are particularly preferred, especially in
decision-making mutually exclusive choices, if using internal rate of return and profit
index will sometimes make the wrong decision, and net present value projects both in
the independent decision-making or decision-making mutually exclusive projects can
make the right decisions. Therefore, theoretically, the net present value method is a
better investment decision making.
4, case studies
in the previous section, this theory expounded this thesis from www.5udoc.com
[worry document] collection and sorting, to thank the original author! Feasibility
analysis of fixed assets and the relationship of NPV. In this chapter, this use is located
southwest of Shanghai, Wu Jing second generation limited liability company's fixed
assets investment in the case, to the actual analysis. The case of relevant information
by the relevant personnel be provided within the enterprise.
(a) of the Company
Shanghai Wu Jing Power Generation Co., Ltd. is Shenergy Co., Ltd. (51% stake) and
the Shanghai Electric Power Co., Ltd. (49% stake) jointly founded by the
administrative department for industry and commerce registration in Shanghai, its
registered capital to 20 billion yuan. This paper from www.5udoc.com [worry
documentation] to collect and organize, for the original author! / Center&gt;