Economic Benefit Analysis Of The Steel Structure Production Project For Jilin Jian'an Construction Co., Ltd.

Project appraisal is the comprehensive examination and evaluation for the designed project on the necessity,background,prospects,technological advantage and economic rationality,based on the feasibility study.From the perspective of investors, project appraisal pays attention to the technology and economy,forecasts the future development,provides suggestions on choosing and organizing projects and some other valuable data to help the investors to make decisions correctly and reasonably.Project appraisal,which is organized from the western countries, and then be extended and applied in the worldwide area,has an immense effect on the economic construction of various countries. Now,it has developed into the comprehensive examination aspects to technology, finance, economy,environment and society.Project appraisal starts from 1950s in China.With the development of the social market economy,more and more attention has been paid to it.Economic benefit analysis,as one of the core parts of project appraisal,analyze and calculate the direct benefit and cost of the project. Moreover,it includes the compilation of financial budget,the evaluating indexes,liquidate capability analysis, operation ability analysis, and profitability analysis,through the instrumentality of which,we can judge the project′s financial feasibility.Economic benefit analysis plays an important role in improving the scientific level of investment decision,optimizing investment structure,reducing investment risk and bringing the investment efficiency and social efficiency into full play.And the content and emphasis point is decided by the project's object,investment subject and the influence degree of economy and society.Economic benefit analysis concludes financial analysis and national economic evaluation.In the economic benefit index-system,the payback period,rate of return and hurdle cut-off rate are all the important parts for the economic benefit analysis.Among them,"the payback period" is clear,simple and easy to understand,by means of which those decision makers can understand the project's economy preliminarily,who know little about the financial index.For all that,it doesn't consider the income and expenditure after the payback period,so it couldn't reflect overall the real efficiency or profitability in the whole life period of the project.External rate of return (ERR) is better than internal rate of return (IRR).There are three reasons.First,ERR is relatively simple in calculation,especially for there has no multiple solutions when we face to the non-routine project,but IRR can't play an efficient role in it.Second,ERR has wide application,which can be used directly to judge which is the best among different projects.Third,reward to ERR,the reinvestment rate of return is just the hurdle cut-off rate,which is forecasted specific economic environment,market research and industry characteristics with scientific method in the particular time. Furthermore,it is the lowest requirement for the investors on the feasibility of the project.Therefore,as it is closer to actual,we should vigorously popularize to use ERR.The determination methods of hurdle cut-off rate includes the capital asset pricing model method,typical projects reference method,Delphi experts investigation method and minimum acceptable rate of return (MARR) method.Among them,MARR method accords with the investors' psychological expectation most.In practice,it is not the best choice to use the average rate of investment return in the same trade or the historical rate of investment return of the enterprise.MARR should be the maximum value among the capital borrowing rate,the opportunity cost rate of the investment,the lowest rate of return required by the investors and the adjusting average rate of investment return in the same trade considering risk factors.The static indexes reflect to the project's economy includes the static payback period,the rate of return on investment and so on;The dynamic indexes reflect to the project's economy includes the dynamic payback period,net present value (NPV),ERR and so on;The indexes reflect to the project's debt paying ability includes the interest coverage ratio (ICR),the debt service coverage ratio (DSCR),liability on asset ratio (LOAR) and so on.Because of the future macroeconomic and microeconomic environment is uncertain,as well as the limitation of the information and the subjectivity of cognition in the project evaluation,there were differences between the analysis process and the actual performance.In order to analyse the influence of the uncertain factors on the evaluation indexes,and estimate the risks of the project,we have to make the uncertainty analysis,which includes break-even analysis and sensitivity analysis.There are two calculation methods for multi-products ,the one is comprehensive calculation,which calculates the break-even sales volume by the comprehensive marginal contribution rate,under certain variety structure;the other is respective calculation,which make break-even analysis respectively on every one.Comprehensive calculation is suitable for the industrial enterprise that can not adjust the product structure too much,and respective calculation is suitable for the enterprise that can not adjust the product structure flexibly.There has two kinds of sensitivity analysis:single-factor sensitivity analysis and multi-factor sensitivity analysis.The former is used more widely to look for the key sensitivity factors.Usually,the sensitivity factors of production construction projects include the cost of raw material purchase,the selling price of product,the annual sale volume,investment and the project's life cycle.Take the steel structure production base for Jilin Jian'an Construction Co., Ltd. for example.First,we should analyse the background of the enterprise and the project itself,and then we should analyse the market prospects and benefits intensively,such as market demand,competitive advantage and risk prevention.Next,it's turn to emphatically analyse investment estimation and financing,and make deterministic analysis by means of the economic benefit index-system.After that,we should make break-even analysis and single-factor sensitivity analysis on the project,to find the break-even point and sensitivity factors,propose the risk prevention measures,and draw a conclusion on the economic benefit analysis at last.