Financial Feasibility Study For HD Company Capacity Expansion Investment Project

The HD company(hereinafter referred to as "the company")involved in this thesis(hereinafter referred to as "the thesis")is engaged in the production and sales of light curing products in the applied field of light curing technology.The current bottleneck in production capacity has seriously restricted the company's further development.The company needs implement capacity expansion investment project(hereinafter referred to as "project" or "expansion project")as soon as possible to increase production capacity.When making investment decisions,the company needs to do a financial feasibility study to answer several main questions from the board of directors: Is the project worth investing in? What value can the project add to the company? What is the returning rate of the project itself? How long can the investment get its payback? What are the risks of the project? What measures can take to prevent the risks?The thesis first uses "Porter's Five Forces Model" analysis method to identify the internal competition structure of the industry,and uses "SWOT" analysis method to identify the company's strengthens,weakness,potential opportunities and threats.On this basis,summarize the company's core competitiveness,the characteristics and implementation objectives of the expansion project as well,which also lay the basic information foundation for the subsequent sales forecast and various risk-prevention measures.In order to get the overall cash flow of the project,the thesis starts study from two aspects according to the timing of the project implementation: the cash flow of the investment in the early stage of the project and the cash flow during the project lifetime.Based on the prediction of capital invest(including both fixed asset investment and capitalized expenditures)and noncapitalization expenditures,the cash flow of the investment in the early stage of the project are formulated.Then predict the sales volume increasing and budget the unit gross margin to work out the incremental gross margin.Followed by further predictions on newly incurred operation expenses,income tax expenses and incremental working capital to determine the cash flow during the whole lifetime of the project.In this way,the overall cash flow budget of the project obtains.The thesis uses the average operating betas of the 93 listed companies in Shanghai and Shenzhen 300 during the past five years as the betas of the project after taking off the financial leverage.Those 93 companies are all in the same industry.Then base on the “Capital Assets Pricing Model” to work out the capital cost,i.e.the project discount rate.Upon with the project's overall cash flow,calculate various financial indicators on the investment decisions,including net present value,profit index,internal rate of return,modified internal rate of return and discounted payback period.Through analyzing the results of each indicator,conclude that the expansion project is worth investing in.The new value added by the project to the company is 226 million yuan with 5.2 discounted payback years and 19% modified internal rate of return.In the last,the thesis uses the single-factor sensitivity analysis method to determine the top three project risk factors,including sales volume of the specialties product,unit raw material cost of specialties product and initial investment in the early stage of the project.Then use the multi-factor sensitivity analysis method to calculate their mix impact on net present value and analyze the risks,which proves investing to the project has a high security.For the risks brought by the uncertainties of the project,it is possible to prevent through taking countermeasures including increase the investment in research and development on specialties products,enhance the sales and marketing efforts to ensure the growth of sales volume on specialties products as well.At the same time,well manage the raw material procurement and control the unit raw material cost.Meanwhile,well control the initial investment in the early stage of the project and ensure its commissioning completeness on time.