1. SEMINAR
REMISHA
ROLL NO.:12
S.I.F. CUSAT

2. ECONOMIC FEASIBILITY ANALYSIS
IN AQUACULTURE
Many methods can be used to evaluate
investment feasibility.
All the methods are only for decision making
and cannot be substituted for judgments on
factors that cannot be quantified.

3. The important methods
Pay back period method
Average rate of return method
Discounting method
» Present value method
Net present value method
Internal rate of return
Benefit – cost method

4. PAY BACK PERIOD METHOD
• It’s also referred to as “pay off
“
• Time required to recover the
initial investment out of the
expected earnings from the
investment before any
allowance for depreciation
• T=C/E
• T payback period
• C initial investment
• E Average annual profit
expected from the investment

5. • Pay back period can be calculated in two different
situations
When annual cash inflow is uniform
When annual cash inflow is unequal
ADVANTAGES
It’s simple to understand and easy to apply
It takes into account liquidity
It minimizes the possibility of losses through obsolescence
DISADVANTAGES
• It ignores the time value of money
• It completely ignores cash inflows after the pay back period
• It does not measure the profitability

6. AVERAGE RATE OF RETURN
METHOD
• Ratio of the average
annual profits expected
after depreciation divided
by the projects initial
investment
• R = E/C
R – average annual
rate of return
E _ average annual
profit expected
after
depreciation
C _ initial
investment

7. ADVANTAGES
Easy to calculate and simple to understand
It consider the entire earnings of the project
It; s based on the accounting concept of profit
DISADVANTAGES
This method ignores time value of money
It ignores life span of various investment
It takes into account only the accounting profit and not cash
flows

8. • DISCOUNTING METHOD
• Time value of money taken into
account
• A rupee received today is more
valuable than the rupee received
tomorrow
• It’s the process of finding out the
present value of future dates
• Discounted cash flow methods are
superior to the traditional method
» They take cash
inflows during the
entire life of the
project.
» Time value of
money is taken.

9. • The discounting method can used to
evaluate the economic feasibility analysis
by private sector and public sectors
• When used by private sector the method
is usually referred to as “financial analysis”
• When used by the public sector it’s often
called “economic or social analysis”

10. FINANCIAL ANALYSIS.
• Estimation of the capital
costs and the timing of
the capital costs over the
life of the project.
• Estimation of the annual
operating costs for
various inputs.
• Estimation of annual
revenue based on the
expected yield and price.

11. ECONOMIC(SOCIAL)ANALYSIS.
• Investment decisions made by
government agencies that are
based exclusively on business
criteria may not be
satisfactory.
• It should be analyzed from
societies point of view.
• Estimation of direct benefits.
• Estimation of direct costs.
• Estimation of indirect effects.
• Estimation of secondary
benefits & costs.
• Selection of social rate of
discount.

12. METHODS OF FINANCIAL &
ECONOMICAL ANALYSIS .
• Major discounting methods are,
• Net present value method.
• Internal rate of return.
• Benefit-cost.

13. NET PRESENT VALUE METHOD.
• Difference between present
value in cash inflows and
present value in cash outflows.
PROCEDURE FOR FINDING
OUT THE NPV.
• Determine a suitable rate of
interest.
• Compute the present value of
all cash outflows.
• Excess of total present value
of cash inflows over the total
present value of cash out flows
represent NPV.
• Accept the project if it is NPV
is greater than or equal to
zero, reject when it is negative.

14. • NPV is calculated as,
• NPV=A1/(1+r)1+A2/(1+r)2+………..+An/
(1+r)n
• NPV >0 investment would be
profitable
• NPV<0 investment would not be
profitable
• NPV =0 it would be a break even
situation

15. ADVANTAGES
• NPV method considers the total inflow during the entire
life of the project
• It’s based on profitability rather than liquidity
• It takes time value of money into account
DISADVANTAGES
• Computation of net present value is rather difficult
process
• Life of asset is totally ignored

16. BENEFIT –COST RATIO
• It’s the ratio of the total
present value of benefits
to the costs
• Two kinds of benefit-cost
ratio;
NET BENEFIT –
COST RATIO
GROOSS BENIFT
-COST RATIO
• Benefit- cost ratio
greater than 1 or the
highest among alternative
investment is feasible .

17. • ADVANTAGES
• It’s very scientific and logic
• It consider fair rate of return
• It’s very useful to compare the projects having different
investments
• DISADVANTAGES
• It's comparatively difficult to understand and follow
• It’s difficult to estimate the estimate the effective life of a
project.
• This method is not in accordance with the accounting
principles and concepts.

18. INTERNAL RATE OF RETURN
METHOD.
• IRR is the discounts rate
which equals the present
value of cash inflows with
the present value of cash
outflows.
• IRR can be calculated by
two ways,
By computing the rate of return on
investment or the rate of
return on equity.

19. ADVANTAGES
• IRR method takes time value of money into account.
• It takes into account on the entire earnings over the
economic life asset.
• Cost of capital is considered for decision making.
DISADVANTAGES.
• The process of computation of IRR is rather difficult.
• It does not consider the variation in the life span assets
• The method ignores the aspect of liquidity.