Institute of Chartered Financial Analysts of India (ICFAI) University 2007 Certification Certified Financial Planner International Finance And Trade - Question Paper

· the costs are based on current quotations from suppliers,
· adequate provision has been made for escalation of costs,
· there is no over or under estimation of the costs.
While analyzing the means of financing, the institutions generally look for:
· a debt equity ratio of less than 1.5:1,
· a substantial contribution from the promoter, which is generally 22.5%,
· compliance with listing requirements of the stock exchanges on which listing is proposed.
The appraisal of working outcomes comprises checking whether:
· the segregation of the expenses into fixed and variable and the calculation of the break even point,
· the break even level of capacity utilization is reached and ensuring that the BEP is reached sufficiently early,
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· the projections for expenses have been made reasonably,
· the project provides a reasonable rate of return. The institutions generally obtain a minimum IRR of 15%, Return on
Investment of 20-25% and debt service coverage ratio of 1.5 to two as the minimum desirable.
Economic Appraisal
Economic appraisal is intended to verify the impact or contribution of the project on the economy as a whole and particularly on
specific sectors which demand immediate attention. The institutions finance those projects whose contribution to the economy is in
conformity with the national priorities. They consider the subsequent factors:
· Economic rate of return computed in accordance with the Partial Little-Mirrlees approach,
· The effective rate of protection,
· The domestic resource cost.
· All these concepts will be explained in the chapter on social cost benefit analysis.
Managerial Appraisal
The institutions try to judge the capacity and commitment of the core promoters and also the top management, if it is manned by
people other than the promoters, as the success of any venture, however, attractive it may be financially, depends on the people, who
manage it. In other words, the managerial, entrepreneurial and personal attributes of the promoter are evaluated. The subsequent factors
are generally considered:
Capacity
· Ability to plan clearly and set realistic goals and objectives,
· Ability to arrange things,
· Ability to choose the right type of people and lead them effectively,
· Ability to negotiate with various types of people under various conditions,
· issue solving ability,

Earning:   Approval pending.