Question

Explain in your own words, in a concrete and summarized way (maximum 15 lines) what are the steps and tools to be implemented to study the financial feasibility of a real investment project. You can use the Hola-Kola case as a reference, as project manager you should tell the team how to proceed, what aspects to evaluate and what are the decision criteria at a financial level to determine if it is worth investing.

Answer 1

To study financial feasibility, calculate initial investment costs, forecast future cash flows, assess cost of capital, conduct NPV and IRR analyses, evaluate payback period, and perform risk analysis. Positive NPV, high IRR, acceptable payback, and manageable risk indicate a good investment.

Step-by-step explanation:

To study the financial feasibility of a real investment project like Hola-Kola, the following steps and tools are typically used:

1. Analyze initial investment costs, including capital expenditures and working capital requirements.
2. Forecast future cash flows from the project, considering revenues, operating costs, and taxes.
3. Assess the cost of capital for funding the project through equity, debt, or reinvestment of profits.
4. Conduct net present value (NPV) analysis to determine the value of future cash flows in today's terms.
5. Calculate the internal rate of return (IRR), which indicates the project's potential profitability.
6. Evaluate payback period, which measures the time needed to recover the initial investment.
7. Perform risk analysis to identify potential uncertainties and their impacts on the project.

Decision criteria include a positive NPV, IRR above the cost of capital, acceptable payback period, and manageable risk levels. These financial metrics are critical for determining if an investment is worth pursuing.