Financial Feasibility Analysis & the case study of JW Marriott 5-star Hotel Project = Phân tích khả thi tài chính áp dụng cho dự án khách sạn 5 sao JW Marriott

VIETNAM NATIONAL UNIVERSITY, HANOI
SCHOOL OF BUSINESS





Dang Thi Thu Huong




FINANCIAL FEASIBILITY ANALYSIS
&
THE CASE STUDY OF JW MARRIOTT 5-STAR HOTEL PROJECT

Major: Business Administration
Code: 60 34 05


MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: PhD. Tran Phuong Lan



Ha Noi, 2012
vi

TABLE OF CONTENT

ACKNOWLEDGEMENTS i
ABSTRACT ii
TÓM TẮT iv
TABLE OF CONTENT vi
LIST OF FIGURES ix
LIST OF TABLE x
1.1 Research objectives 2
1.2 Research questions 2
1.3 Data resources 2
1.4 Thesis structure 3
1.5 Thesis’s limitation 4
CHAPTER 1: LITERATURE REVIEW 6
1.1 Overview of construction projects 6
1.1.1. Concept of project 6
1.1.2. Project life cycle 6
1.1.3. Project’s aspects 9
1.2 Features of Hospitality industry 10
1.3 Overview of Feasibility Study 11
1.3.1. Concept of a Feasibility Study 11
1.3.2. Importance of a Feasibility Study 12
1.3.3. Contents of a Feasibility Study 12
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1.4 Environment Feasibility Analysis Models 13
1.4.1 PEST model 14
1.4.2 Five forces model 15
1.5 Financial Feasibility Analysis 19
1.5.1 Concept of Financial Feasibility Analysis 19

1.5.2 Purposes of Financial Feasibility Analysis 19
1.5.3 Conducting a Financial Feasibility Analysis 20
1.5.4 Criteria for a Financial Feasibility Analysis 21
1.5.5 Risk analysis methods 28
CHAPTER 2: OVERVIEW AND FINANCIAL FEASIBILITY ANALYSIS OF
JW MARRIOTT HOTEL PROJECT 30
2.1 Overview of Project Investor 30
2.2 Overview of JW Marriott Hotel Project 32
2.3 Project’s Environment Feasibility Analysis 39
2.3.1 PEST Analysis 39
2.3.2 Five force Analysis 42
2.4 Project’s Costs 44
2.4.1 Construction cost 44
2.4.2 Annual Operation Costs 45
2.4.3 Other expenses 48
2.5 Project’s Revenues 48
2.5.1 Room revenue 49
2.5.2 Conference, Food and Beverage revenue 53
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2.5.3 Revenue from renting luxury store 53
2.5.4 Revenue from other services 54
2.6 Capital budgeting 54
2.7 Estimated Financial Statement 58
2.7.1 Estimated Project’s Income Statement 58
2.7.2 Estimated Project’s Cash flow 64
2.8 Financial Criterion Calculation 65
2.9 Summary and conclusion of project investment efficiency 65
CHAPTER3: RESEARCH FINDINGS AND RECOMMENDATIONS 66
3.1 Limitations in JW Marriott Hotel Project model 66

3.2 Recommendation to construct an effective Financial Feasibility Analysis for a
hotel project 73
CONCLUSION 85
REFERENCES 87
APPENDICES 88
ix

LIST OF FIGURES

Figure 1.1: PEST Model 15
Figure 1.2: Forces Driving Industry Competition 16
Figure 2.1: Real GDP Growth Rate & GDP per Capita in Viet nam & Hanoi 40

x

LIST OF TABLE

Table 2.1: Project scale 35
Table 2.2: Number of conference room 36
Table 2.3: Competitors of JW Marriott hotel 43
Table 2.4: Construction cost of JM Marriott hotel 45
Table 2.5: Room price of other 5 star hotels in Hanoi 49
Table 2.6: Forecasted room price for JW Marriott hotel 50
Table2.7: The average occupancy rate of 5 star Hotels in Hanoi in 3 recent years
2008, 2009 and 2010 52
Table 2.8: Finance structure 56
Table 2.9: Project’s operation costs and revenues 58
Table 3.1: Number of room of 5-star hotel in Hanoi 67
Table 3.2: Npv sensitivity to the changes in standard room rate and suite room rate
70

1

INTRODUCTION

As competition in the business environment increases, knowledge
management becomes a critical success factor. Firms should be able to gather,
analyze and re-use knowledge to support their strategic and management decisions.
Construction firms also should analyze information in hand, includes completed and
on-going project data, and make it a part of their learning mechanism. Project
evaluation is an organizational learning mechanism aiming to form data for the last
objectives are monitoring and making decision. Particularly, information about
efficiency, feasibility and the risks with their consequences is an important piece of
knowledge that the firms should refer to in the forthcoming projects in order not to
do the same mistakes.
Feasibility Study is an important tool that your organization can use to
demonstrate its accountability, improve its performance, increase its abilities for
obtaining funds or future planning, and fulfill the organizational objectives. By
communicating the results of the feasibility study, your organization can inform its
staff, board of directors, service users, funders, the public, or other stakeholders
about the benefits and effectiveness of your organization’s projects and programs.
Although there are many benefits in conducting Feasibility Study, it will be a waste
of your organization’s resources if the results are not used.
With these above reason, the major objective of this thesis is to develop a
model for feasibility study, especially on the view of finance discipline. The
framework is modeled to ensure information continuity throughout the project life
cycle. This model is discussed through analyzing a real project, since then, get study
from that and makes recommendation.

2

1.1 Research objectives
The objective of this study is to develop a manual that presents a step-by-step
process for determining the effectiveness of a hotel project. The techniques that
will be used in the methodology are common financial analysis tools.
A case study of project in BITEXCO – JW Marriott Hotel project will be
used to demonstrate evaluation process; therefore, will primarily consist of an
overview of the factors that should be addressed in each project, particularly those
factors that will serve as the base for assumptions made during the feasibility study.
Based on the existing method applied in JW Marriott hotel, this thesis also gives
some recommendations to conduct an effective Financial Feasibility Analysis for a
real estate for rent project.
In summary, the primary objective of this study is to develop a complete
methodology that can be used to evaluate feasibility of a project, focus on finance
aspect and especially for a hotel project.
1.2 Research questions
The following research questions have been formulated for achieving the
goal of this thesis:
1- What are the methods and criteria considered in a Financial Feasibility
Analysis of a project?
2 – Which method and how BITEXCO are applying to evaluate a project in
reality?
3 - What are useful recommendations to conduct a Financial Feasibility
Analysis for a hotel project?.
1.3 Data resources
Generally, the theory distinguishes between primary and secondary data,
while primary data is data where the researcher is actively involved in collecting it,
3

secondary data is existent data that is studied and where the researcher has not been
involved in its collection (Bell and Bryman 2007).
The data can be of quantitative or qualitative nature. This thesis will make
use of qualitative and quantitative, empirical, secondary data such as the before
mentioned reports, feasibility studies as well as books and a broad range of articles
concerning the several topics of: feasibility study, project appraisal, project
evaluation, project risk analysis. Secondary data used to support this thesis is some
Feasibility study reports of other companies for their real projects. The quantitative
data that is used concerns both hotel industry and construction industry.
The primary data is the real figures of Financial Feasibility Analysis – JW
Marriott Hotel project which used in BITEXO – the investor of project.
1.4 Thesis structure
The thesis is split up into four main parts and 3 main chapters. Figure 1
shows this in a systematic way.
Part I: Introduction
Part I give an introduction into the topic and describe the overall setting. This
part also describes the methodology used in research design, research question, and
limitation. Thus, it represents the overall framework for the whole thesis.
Part II: Chapter 1
Part II of the thesis builds up the theoretical and practical basis for the
analysis. It contains the theoretical outline of the most relevant, those are:
Definitions, conceptual foundations, major steps, criterions, guidelines used in
Feasibility Study and Financial Feasibility Analysis.
Part III: Chapter 2
This part contains information on evaluation methods with real figures of JW
Marriott Hotel project and company’s decision on the project.
4

Part IV: Chapter 3

On the basis of part III, Chapter 3 presents the conclusions and reflections of
financial evaluation practice in Marriott project and then gives information on
limitations and findings from the Feasibility analysis presented in chapter II. This
chapter also provides some recommendations in conducting a Financial Feasibility
Analysis for a hotel project.

Structure of the thesis

1.5 Thesis‟s limitation
The case used in this thesis is a real and very big project with an intensive
capital, long life (50 years). At the time of this research, it was go further than two
third ways of construction phase and going to be operating. Thus, this thesis will not
analyze the construction phase and assume that the total construction cost when
completed in Quarter 1/2013 is not different from estimated one.
Part I
INTRODUCTION
Part II

Chapter 1: Theoretical framework
Part III

Chapter 2: Analysis of JW Marriott Hotel case study
Part IV

Chapter 3: Comments and Recommendation
Being input and basis
for
Serving as basis
for
5

Because the scope of analyzed case study is too big, so many things need to
be discussed in dept, but with the limited time, limited resource and knowledge, the
author has to assume some factors are true and no more calculation and analysis.
Especially, the WACC factor ought to calculate because of its significant role in
financial criterion calculation, but to conduct this figure, it requires a lot of time and
relate to other projects and information of company, in some way, these information
is confidential, so I assume we use a WACC at a fixed rate to calculate other
financial criterion.
6

CHAPTER 1: LITERATURE REVIEW

First of all, this thesis will present a theoretical framework and help the
reader make logical sense of the relationships of the variables and factors that have
been deemed relevant/important to the problem. It provides the understand how a
hotel construction project run, what is financial feasibility analysis, why we have to
make feasibility study before deciding to invest in a project. This framework are use
for general project, base on it, we can go further in analyze a specific case study.
1.1 Overview of construction projects
1.1.1. Concept of project
A project is an undertaking that has a beginning and an end and is carried
out to meet established goals wihtin cost, schedule and quality objectives (Haynes,
Project Management).
A project often has the following characteristic:
- A defined beginning and end
- Resources allocated specifically to it
- Intended to be done only once (although similar separate projects could
be undertaken)

- Follows a plan towards a clear intended end-result
- Often cuts across organisational and functional lines
Project management can be defined as the planning, scheduling and
controlling of a series of integrated tasks such that the objectives of the project are
achieved successfully and in the best interest of the project’s stakeholders (Harold
Kerzner, PhD, Advanced project management 2
nd
edition)
1.1.2. Project life cycle
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Every project has beginnings, a middle period during which activities move the
project toward completion, and an ending (either successful or unsuccessful). A standard
project typically has the following four major phases (each with its own agenda of tasks
and issues): initiation, planning, execution, and closure. Taken together, these phases
represent the path a project takes from the beginning to its end.
Initiation phase: During the first of these phases, the initiation phase, the
project objective or need is identified; this can be a business problem or opportunity. An
appropriate response to the need is documented in a business case with recommended
solution options. A feasibility study is conducted to investigate whether each option
addresses the project objective and a final recommended solution is determined. Issues of
feasibility and justification are addressed. Once the recommended solution is approved, a
project is initiated to deliver the approved solution and a project manager is appointed.
The major deliverables and the participating work groups are identified and the project
team begins to take shape. Approval is then sought by the project manager to move on
the detailed planning phase.
Planning phase: this phase is where the project solution is further
developed in as much detailed as possible and you plan the steps necessary to meet
the project’s objectives. In this step, the company identifies all of the work to be
done. The project’s tasks and resource requirements are identified, along with the

strategy for producing them. This is also referred to as scope management. A
project plan is created outlining the activities, tasks, dependencies and timeframes.
The project manager coordinates the preparation of a project budget; by providing
cost estimates for the labor, equipment and materials costs. The budget is used to
monitor and control cost expenditures during project execution. Once the project
company has identified the work, prepared the schedule and estimated the costs, the
three fundamental components of the planning process are complete. This is an
excellent time to identify and try to deal with anything that might pose a threat to
the successful completion of the project. This is called risk management. In risk
management, “high-threat” potential problems are identified along with the action
8

that is to be taken on each high threat potential problem, either to reduce the
probability that the problem will occur or to reduce the impact on the project if it
does occur. This is also a good time to identify all project stakeholders, and to
establish a communication plan describing the information needed and the delivery
method to be used to keep the stakeholders informed. Finally, you will want to
document a quality plan; providing quality targets, assurance, and control measures
along with an acceptance plan; listing the criteria to be met to gain customer
acceptance. At this point, the project would have been planned in detail and is ready
to be executed.
Execution phase: During the third phase, the project plan is put into
motion and performs the work of the project. It is important to maintain control and
communicate as needed during execution. Progress is continuously monitored and
appropriate adjustments are made and recorded as variances from the original plan.
In any project a project manager will spend most of their time in this step. During
project execution, people are carrying out the tasks and progress information is
being reported through regular company meetings. The project manager uses this
information to maintain control over the direction of the project by measuring the
performance of the project activities comparing the results with the project plan and

takes corrective action as needed. The first course of action should always be to
bring the project back on course, i.e., to return it to the original plan. If that cannot
happen, the company should record variations from the original plan and record and
publish modifications to the plan. Throughout this step, project sponsors and other
key stakeholders should be kept informed of project status according to the agreed
upon frequency and format. Status reports should always emphasize the anticipated
end point in terms of cost, schedule and quality of deliverables. Each project
deliverable produced should be reviewed for quality and measured against the
acceptance criteria. Once all of the deliverables have been produced and the
customer has accepted the final solution, the project is ready for closure.
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Closure phase: During the final closure, or closeout phase, the emphasis is
on releasing the final deliverables to the customer, handing over project
documentation to the business, terminating supplier contracts, releasing project
resources and communicating the closure of the project to all stakeholders. The last
remaining step is to conduct lessons learned studies; to examine what went well and
what didn’t. Through this type of analysis the wisdom of experience is transferred
back to the project organization, which will help future project teams.
(Source: Project Management for Scientists and Engineers by Merrie Barron
and Andrew R. Barron. It is licensed under a Creative Commons Attribution
License CC-BY 3.0)
1.1.3. Project’s aspects
Projects are defined by their scope, budget, and schedule. For example, a
company is to undertake a project to design and build a new commercial center
(scope), at an estimate of $15 million (preliminary budget) over a three-year period
(schedule).
 Scope: Each project is unique and must have a written requirements
document that takes into consideration operational needs, level of service,
regulatory requirements and quality of deliverables.

 Schedule: All projects must have a definite beginning and end. Once
there is a well-defined scope, the Company needs to determine the time it will take
to complete the project by developing the project schedule. Developing the schedule
involves breaking down the work into manageable activities needed to accomplish
the scope of each deliverable, estimating the duration of each activity, and placing
them in a logical sequence. A project schedule tells you the expected duration of the
project and the logical relationships between the activities.
 Budget: All projects are constrained by limited monetary funding
resources. Consequently, every project needs a budget to initially define its funding
requirement. The project manager develops the budget based on the cost estimates
10

at the beginning of each project phase and refines it once there is better information
defining the scope. Refining the budget occurs through studies and analysis in the
design development process through the preliminary engineering phase. When a
company tries to fix the budget too early in the project life cycle, they can be
surprised by the significant increases in the budget. The budget, therefore, should
not be fixed as baseline until after completion of the preliminary engineering phase.
1.2 Features of Hospitality industry
The hospitality industry consists of broad category of fields within the
service industry that includes lodging, restaurants, event planning, theme parks,
transportation, cruise line, and additional fields within the tourism industry. The
hospitality industry is a several billion dollar industry that mostly depends on the
availability of leisure time and disposable income. A hospitality unit such as a
restaurant, hotel, or even an amusement park consists of multiple groups such as
facility maintenance, direct operations (servers, housekeepers, porters, kitchen
workers, bartenders, etc.), management, marketing, and human resources.
The hospitality industry covers a wide range of organizations offering food
service and accommodation. The industry is divided into sectors according to the
skill-sets required for the work involved. Sectors include accommodation, food and

beverage, meeting and events, gaming, entertainment and recreation, tourism
services, and visitor information.
Product of Hospitality industry share the same unique characteristics of
service industry product, the most commonly are:
o Intangiblity
o Inseparability
o Heterogeneity
o Perishability
o Ownership
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For a hotel project, these features are very important points: Capital investment;
usage rate; personel working; the growth of tourism industry.
Capital investment: Depend on size of property, location, service standard, In
general, a hotel project requires a huge initial investment with long payback
period. A 5-star hotel project can be a several billion dollar project. In operation
phase, the cost cosists of multiple groups such as facility mainternance, direct
operations, management, marketing and human resources.
Usage rate: or vacancy rate is an important variable for a hotel project. This rate
is similar to productive in a factory, while the factory does not operate, the fixed
costs still be paid, so in hotel operating, maximize number of customers means
increase profit for owner.
Personnel working: Tourism is a people oriented industry requires persons
serving other persons. The quality of human resource is a clear competitive
advantage.
The growth of tourism industry: This factor affects directly to a hotel project,
high growth rate will attract more international customers, a country has a high
growth rate of tourism industry is also the one has economic prosperity and
political stability.
(Source: mix sources from internet, Wikipedia.org, Google search engine…)

1.3 Overview of Feasibility Study
1.3.1. Concept of a Feasibility Study
A Feasibility Study for a project can be defined as a controlled process for
identifying problems and opportunities, determining objectives, describing
situations, defining successful outcomes and assessing the range of costs and
benefits associated with several alternatives in order to carry out the project. A
Project Feasibility Study is conducted in the initial and updated during the other
12

phases. It is an analytical tool that includes recommendations and limitations, which
are utilized to assist the decision makers when determining if the project is viable.
1.3.2. Importance of a Feasibility Study
It is estimated that only one in fifty business ideas are actually viable.
Therefore, determining early that a business idea is not financially feasible can
prevent loss of money and waste of valuable time. Besides, the results from the
feasibility study should outline the various scenarios examined and the implications,
strengths and weaknesses of each idea.
If a project is found feasible from the result of the study, the next step is to
proceed with a full project plan. The research information uncovered in the
Feasibility Study will support the project planning and reduce research time, which
helps reduces the cost of planning.
Finally, a Feasibility Study is heavily based on market research and analysis,
which provides decision makers with varying degrees of evidence that a project will
in fact be viable.
1.3.3. Contents of a Feasibility Study
In order to support companies in decision making, a Feasibility Study should
cover a various factors which have effects on the project. Feasibility Study of a
construction project usually includes the following analysis:
Economic feasibility analysis
Economic analysis is the most frequently used method for evaluating the

effectiveness of a project. More commonly known as cost/benefit analysis, the
procedure is to determine the benefits and savings that are expected from a
candidate system and compare them with costs. If benefits outweigh costs, then the
decision is made to design and implement the system. An entrepreneur must
accurately weigh the cost versus benefits before taking an action.
Legal feasibility analysis
13

Legal analysis determines whether the project has enough legal base to be
carried out and if the current legal system will create any obstacles against the
project.
Schedule feasibility analysis
A project will fail if (1) it takes too long to be completed before it is useful or
(2) it comes into operation in inappropriate time. Typically this means estimating
how long the system will take to develop, when it should come into operation and if
it can be completed in a given time period using some methods like payback period.
Schedule feasibility is a measure of how reasonable the project timetable is. Given
our technical expertise, are the project deadlines reasonable? Some projects are
initiated with specific deadlines. You need to determine whether the deadlines are
mandatory or desirable.
Financial feasibility analysis
In case of a new project, financial viability can be judged on the following
parameters:
 Total estimated cost of the project
 Financing of the project in terms of its capital structure, debt equity ratio
and promoter's share of total cost
 Existing investment by the promoter in any other business
 Projected cash flow and profitability
The first three analyses will give basic understanding for assumptions and
other components in Financial Feasibility Analysis. Although they may not provide

information which is a perfect fit to the proposed business model, they will provide
a strong starting point for future analysis. In this thesis, such analyses are
hereinafter called “Environment Feasibility Analysis”.
1.4 Environment Feasibility Analysis Models
14

Business and market analysis will contribute considerably to the Financial
Feasibility Analysis; they give a basic understanding to make assumptions and other
components of the FFA report. Consideration should be given to using traditional
business analysis techniques such as SWOT, Porters Five Forces and PEST.
Although they may not provide information which is a perfect fit to the proposed
business model, they will provide a strong starting point for future analysis.
These below model will be used to analyze external environment of the case
study. They are PEST model and Five Forces model.
1.4.1 PEST model
The dynamics of the world economy set the overall economic context for
organizations, but Economic developments are influenced by Political Social and
Technological factors. These can be examined using the framework referred to as
PEST analysis.
The objectives of carrying out a PEST analysis for any organization are to:
1. Determine the key environmental influences on that organization
2. Examine the impact of the external influences.
Political factors include changes in the government or in government
policies. For example, the government current policies on imposing special tax on
imported motorbikes or increase the registration fee for new motorbikes in big cities
could have a large impact on the lubricant demand.
Economic factors refer to the national economic development indicators,
such as GDP per person, annual growth rate, inflation, investment, etc. For example,
the development of Vietnamese economy in the last decade has booted the demand
for motorbikes and automobiles. This in turn creates a big need for lubricant.

Social factors are culture, customs, habits, or shared beliefs. How fast people
will change their habit of using their own motorbikes to taking buses? How fast a
distributor will change his/her habit of doing business from entrepreneurial, short-
15


Economic Environment Social
Political
Technological
term oriented into more professional and long term oriented? Often, it takes a long
time.
Technological factors could include level of technology in the economy and
the development of infrastructure. For example, in many state-owned enterprises,
the machines they used were out-of-date. Does it imply anything to be lubricant
suppliers? Or does the underdevelopment of the infrastructure influence the demand
for lubricant?






Figure 1.1: PEST Model
The PEST analysis can also help to examine the differential impact of
external influences on an organization, either historically or in terms of likely
impact.
1.4.2 Five forces model
Source: Adapted/reprinted with permission of The Free Press, an imprint of
Simon& Schuster, from Competitive Strategy: Techniques for Analyzing Industries
and Competitors by Michael Porter.

16



Five factors are presented in figure 1.3, in which, a strong force can be
regarded as a threat because it is likely to reduce profits. In contrast, a weak force
can be viewed as an opportunity because it may allow the company to earn greater
profits.
Thread of new entrants:
New entrants are newcomers to an existing industry. They typically bring
new capacity, a desire to gain market share, and substantial resources. Therefore,
they are threats to an established corporation. The thread of entry depends on the
presence of entry barriers and the reaction that can be expected from existing
competitors. An entry barrier is an obstruction that makes it difficult for a company
to enter an industry. Some of the possible barriers to entry are the following:
- Economies of Scale
- Product differentiation
- Capital requirements
- Switching costs
- Access to distribution channels
- Cost disadvantages independent of size
Figure 1.2: Forces Driving Industry Competition
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- Government policy
Rivalry among existing firms
Rivalry is the amount of direct competition in an industry. In most industries,
corporations are mutually dependent. A competitive move by one firm can be
expected to have a noticeable effect on its competitors and thus may cause
retaliation or countervailing efforts. According to Porter, intense rivalry is related to

the presence of the following factors:
- Number of Competitors
- Rate of Industry Growth
- Product or Service Characteristics
- Amount of Fixed Costs
- Capacity
- Height of Exit Barriers
- Diversity of Rivals
Substitute Products or Services
Substitute products are those products that appear to be different but can
satisfy the same need as another product. According to Porter, “Substitutes limit the
potential returns of an industry by placing a ceiling on the prices firms in the
industry can profitably charge”. To the extent that switching costs are low,
substitutes may have a strong effect on an industry. Sometimes a difficult task, the
identification of possible substitute products or services means searching for
products or services that can perform the same function, even though they may not
appear to be easily substitutable.
Bargaining Power of Buyers
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Buyers affect an industry through their ability to force down prices, bargain
for higher quality or more services and play competitors against each other. A buyer
or distributor is powerful if some of the following factors hold true:
- A buyer purchases a large proportion of the seller’s product or service.
- A buyer has potential to integrate backward by producing the product itself
- Alternative suppliers are plentiful because the product is standard or
undifferentiated
- Changing suppliers costs little
- The purchased product represents a high percentage of a buyer’s costs, thus
providing an incentive to shop around for a lower price

- A buyer earns low profits and is thus sensitive to costs and service
differences
- The purchased product is unimportant to the final quality or price of a
buyer’s products or services and thus can be easily substituted without adversely
affecting the final product
The Bargaining Power of Suppliers
Suppliers can affect an industry through their ability to raise prices or reduce
the quality of purchased goods and services. A supplier or supplier group is
powerful if some of the following factors apply:
- The supplier industry is dominated by a few companies, but it sells to
many
- Its product or service is unique or it has built up switching costs
- Substitutes are not readily available
- Suppliers are able to integrate forward and compete directly with their
present customers
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- A purchasing industry buys only a small portion of the supplier group’s
goods and services and is thus unimportant to the supplier
1.5 Financial Feasibility Analysis
1.5.1 Concept of Financial Feasibility Analysis
Financial feasibility analysis is an analytical tool used to evaluate the
economical viability of an investment. It consists of evaluating the financial
condition and operating performance of the investment and forecasting its future
condition and performance. A financial decision is dependent on two specific
factors, expected return and expected risk, and a financial feasibility analysis is a
means for examining those two factors (Fabozzi and Peterso, 2003).
1.5.2 Purposes of Financial Feasibility Analysis
Financial Feasibility Analysis is usually conducted during the initial and
planning phases. The reasons to well prepare a Financial Feasibility Analysis can be

easily seen are:
 Focuses on the investigation of the overall financial situation around the
project;
 Quantifies relatively benefits from business alternatives, so that the company
can compare easily and choose out the best option;
 Identifies new opportunities and obstacles through the investigation process;
 Enhances the probability of success by addressing and mitigating factors
early on that could affect the project;
 Helps in securing funding from lending institutions and other monetary
sources;
 Helps to attract investments from other partners;
 Give a benchmark when adapting project to new conditions.