Appraisal for SRF plaza complex project

TRƯỜ
NG ĐẠI HỌC MỞTP. HCM
HO CHI MINH CITY OPEN UNIVERSITY

UNIVERSITÉLIBRE DE BRUXELLES
SOLVAY BRUSSELS SCHOOL

MBAVB4

ồn Th Thanh Thúy

APPRAISAL FOR SRF PLAZA COMPLEX PROJECT

MASTER PROJECT
MASTER IN BUSINESS ADMINISTRATION
(PART-TIME)

Ho Chi Minh City
(2012)


i

HONOR STATEMENT
I pledge that this Masters Thesis entitled Appraisal for SRF Plaza Complex
Project has not yet been published.
I further pledge that I have written this Masters Thesis myself, on my own. I
have not employed any sources or aids other than those listed. The quotations and
data used in this thesis have the highest accuracy within the scope of my
knowledge.
Signature

oàn Th Thanh Thúy


ii

ACKNOWLEDGMENTS
Firstly, I wish to express my earnest gratefulness to Dr. Nguy n Minh Ki u for
his support all along this thesis. He was exceptional mentors to me.
Thanks to my professors of MBAVB4 course, without their aid and teaching,
this research work would not have been completed.
I am very thankful to Searefico Company for their help during my research
work.
Finally, my husband and my parents have been a tremendous support to me all
along my studies. Without their encouragement, understanding and sacrifices, this
work would not have been possible.


iv

ABSTRACT
The program to relocate the urban polluting enterprises and the plans to tackle
thoroughly the polluting facilities into the industrial parks, industrial clusters of the
Government are being implemented, and SRF Company is one of the companies

affected by this policy. Therefore, SRF Company must relocate their entire
operations on that land into the industrial areas whether the land lease contract
through 2012 or not.
To encourage the relocation of enterprises, the Prime Minister has issued
regulations that the enterprises may change the Land Use Purpose to continue to

invest if this location is suitable for land planning and corporate business
functions are suitable for investment projects. With the suitable plan, the State
will accept and charge the land price at the state price, not at the market price.
Realizing that the demand for real estate is very high, SRF Company
considered the plan changing the land use purpose to invest in a SRF Plaza
project which is a complex including residential categories and commercial
center. The proposed development has a total land area of 12,573m2. Upon
completion, the project will consist of a total GFA of 87,761m2 of which
78,010m2 is identified for the residential component, 9,751m2 is reserved for the
retail component and the balance will serve as parking. The subject property will
have an overall plot ratio of 7 whilst the total site coverage is 39%, and a
maximum height restriction of 18 storeys.
To affirm certainty the level of efficiency, feasibility of project, SRF
Company need to evaluate and assess the financial feasibility of the SRF Plaza
project to confirm that the changing of current land use purpose to invest in the
SRF Plaza project is effective or not.


v

After calculating and analyzing the financial structure for SRF Plaza, with
the results of NPV> 0, IRR = 50% and BCR > 1, that means the SRF Plaza
project is a financially feasible project. Furthermore, after performing sensitivity
analyzing with the input variables concerned, the results are: the apartment
selling price affected to the decision of the investor, but it is not a major concern,
the apartment selling price of 12.1million/m2 for grade B apartment to get NPV
> 0 and IRR > MARR is entirely possible. The commercial leasing price has
absolutely no affect to the decision of the investor as analyzed above, even if the
commercial leasing price is lowest then the NPV of investor is also positive and
IRR > MARR. On the issue of construction cost, with the increase of construction

cost by 37%, NPV of the investor is zero and the nominal IRR of the investor is
equal to MARR, but it is really hard to make the increasing of construction cost
by 37% occur.
The SRF Plaza project launched in accordance with the policy to
encourage relocation the urban polluting enterprises of the Government.
Compared to renting land from the Government, if SRF Company convert the
land use purpose to invest the SFR Plaza project, then it would increase the state
budget with revenues from the land use right transfer tax, tax on commercial
leasing, tax on apartment selling and corporate income tax. Further more, the
SRF Plaza project launched will create more jobs for laborers in the execution
time, contribute to make landscape more beautiful and improve the quality of
life for citizens.
Conclusion, SRF Plaza project is financially and socially feasible, SRF
Company should continue to use the leased land to consider the plan constructing
SRF Plaza complex project.


vi

TABLE OF CONTENTS
Honor statement ................................................................................................... i
Acknowledgments................................................................................................ ii
Tutor Comments.................................................................................................. iii
Abstract............................................................................................................... iv
Table of Contents ................................................................................................ vi
Abbreviations ...................................................................................................... ix
List of Tables ....................................................................................................... x
List of Figures ..................................................................................................... xi
List of Appendix................................................................................................. xii
CHAPTER 1: INTRODUCTION .......................................................................1

1.1 Rationale of the study..................................................................................1
1.2 Statement of the problem............................................................................2
1.3 Research objectives .....................................................................................3
1.4 Research questions ......................................................................................3
1.5 Scope and limitations .................................................................................4
1.6 Research Method.........................................................................................4
1.7 Structure of the study..................................................................................6
CHAPTER 2: LITERATURE REVIEW ...........................................................7
2.1 Project valuation ........................................................................................7
2.1.1 What is the Project valuation? ....................................................................7
2.1.2 Why is project valuation important? ...........................................................7
2.2 Project Appraisal Method...........................................................................9


vii

2.2.1 NPV Method ...............................................................................................10
2.2.2 IRR Method ................................................................................................11
2.2.3 BCR Method ...............................................................................................12
2.3 Making decision...........................................................................................12
2.4 Risk management ........................................................................................13
2.5 Overview of Real Estate market .................................................................15
2.6 Review the construction of the complex .....................................................19
2.7 Key findings.................................................................................................22

CHAPTER 3: SRF PLAZA PROJECT APPRAISAL.....................................24
3.1 Introduces of SRF Plaza ............................................................................24
3.1.1 Land Description........................................................................................24
3.1.2 Locality and Surrounding Development .....................................................26
3.2 Proposed Development ..............................................................................28

3.3 Factors Influencing the Evaluating ...........................................................33
3.3.1

Time Planning ...........................................................................................33

3.3.2 Construction Cost.......................................................................................34
3.3.3 Contingency Cost .......................................................................................37
3.3.4 Commercial selling price ...........................................................................37
3.3.5 Rate of payment progress ...........................................................................41
3.3.6 Area Rate for sale.......................................................................................41
3.3.7 Lease price for commercial office: ............................................................41

3.3.8 Parking charge for motorcycles and cars ..................................................41


viii

3.3.9 Loans..........................................................................................................42
3.3.10 Depreciation...............................................................................................43
3.4 Cash flow chart ...........................................................................................44
3.5 SRF Plaza project appraisal ......................................................................46
CHAPTER 4: RISK ANALYSIS .......................................................................47
4.1

Define the risk variables...........................................................................47

4.2 Sensitivity analyzing results.......................................................................48
4.2.1 Sensitivity analyzing results for apartment selling price ............................48
4.2.2 Sensitivity analyzing results for apartment selling growth rate ..................49
4.2.3 Sensitivity analyzing results for commercial leasing price .........................51

4.2.4 Sensitivity analyzing results for construction cost ......................................53
4.3 Scenario analyzing results for apartment selling price and commercial
leasing price ................................................................................................55
4.4 Simulation analysis .....................................................................................57
4.5 Conclusion on risk analysis ........................................................................58
CHAPTER 5: CONCLUSIONS and RECOMMENDATIONS........................60
5.1

Conclusions.................................................................................................60

5.1.1 Financially .................................................................................................60
5.1.2 Socially.......................................................................................................60
5.2 Recommendations ......................................................................................61
Reference ..............................................................................................................63


ix

Appendix...............................................................................................................66


x

ABBREVIATIONS
BCR

Benefit – Cost Ratio

CBRE

CB Richard Ellis

CPI

CB Richard Ellis Vietnam

FDI

Foreign Direct Investment

GDP

Gross Domestic Product

GFA

Gross Floor Area

HCM

H Chí Minh

IRR

Internal Rate of Return

MARR

Minimum Acceptable Rate of Return

NLA

Net Land Area

NPV

Net Present Value

SRF

Searefico

VND

Vietnam ong

WTO

World Trade Organization


xi

List of Tables
Table 3.1: Input parameters of SRF Plaza (1)......................................................29
Table 3.2: Input parameters of SRF Plaza (2)......................................................30
Table 3.3: Comparison input parameters of SRF Plaza to other surrounding
projects .........................................................................................................31
Table 3.4: Phasing of project construction ...........................................................33
Table 3.5: Construction Cost following the Decision No. 411/QD-BXD.............35

Table 3.6: Predict Construction Price Index in February 2012 ............................36
Table 3.7: Estimated construction cost for SRF Plaza project .............................37
Table 3.8: Apartment selling price of projects surrounding the SRF Plaza .........38
Table 3.9: Expected selling area rate...................................................................41
Table 3.10: Parking revenue for motorcycles and cars .......................................42
Table 3.11 Loans ..................................................................................................43
Table 3.12: Financial analysis of SRF Plaza project...........................................44
Table 4.1 Change in apartment selling price to IRR and NPV ...........................48
Table 4.2: Change in apartment selling price growth rate to IRR and NPV .......50
Table 4.3: Change in commercial leasing price to IRR and NPV of the investor
......................................................................................................................52
Table 4.4: Change in construction cost to IRR and NPV of the investor .............54
Table 4.5: Change in apartment selling price and commercial leasing price to
IRR and NPV of the investor.............................................................56


xii

List of Figures
Figure 2.1: The project development/evaluation cycle........................................8
Figure 2.2: Risk Management Model...................................................................14
Figure 3.1: Strategic Master Plan of District 6.....................................................26
Figure 3.2: Location of SRF Plaza .......................................................................27
Figure 3.3: The frontage to An Duong Vuong Street ...........................................27
Figure 3.4: Surrounding developments ................................................................28
Figure 3.5: Cash flow chart of the SRF Plaza ......................................................45
Figure 4.1: The correlation of selling price change and NPV of investor ...........49
Figure 4.2: The correlation of selling price growth rate and NPV of investor ....51
Figure 4.3: The correlation of commercial selling price and NPV of investor ....53
Figure 4.4: The correlation of construction cost and NPV of investor .................55

Figure 4.5: Crystal Ball simulation result for NPV ..............................................57
Figure 4.6: Crystal Ball simulation result for IRR ...............................................58


xiii

List of Appendix
Appendix 1: Land Use Right Certificates No.AD734143 dated 01 December
2006.................................................................................................67
Appendix 2: Leasing Contract..............................................................................69
Appendix 3: Area calculation...............................................................................71
Appendix 4: Phasing of project construction........................................................73
Appendix 5: Predict construction price index ......................................................74
Appendix 6: Construction cost..............................................................................75
Appendix 7: Rate of payment progress ................................................................76
Appendix 8: Income statement.............................................................................77
Appendix 9: Crystal ball Simulation ....................................................................89


1

CHAPTER 1: INTRODUCTION
1.1 Rationale of the study
The program to relocate the urban polluting enterprises and the plans to tackle
thoroughly the polluting facilities into the industrial parks, industrial clusters with
the term from 2002 to 2006 of the Government following the Decision no.
64/2003/Q -TTg of 22/04/2003 are being implemented. At Ho Chi Minh City,
these programs and plans are concretized by the Resolution of the people’s Council
no. 22/2002/NQ-H

of 29/06/2002, with proposals to relocate the polluting

enterprises into the industrial areas and its surroundings. Further, Decision of
People’s Committee of Ho Chi Minh City no. 80/2002/Q -UB of 08/07/2002
approved the proposals relocating the polluting enterprises in to the industrial areas
and its surroundings.
SRF is a state - owned enterprise that has been converted into Joint Stock
Company with the its office located at 149B Truong Dinh Street, Ward 9, District,
is one of the companies affected by the above programs and plans.
Currently, SRF Company, is a legal entity, has obtained the Land Use Right
Certificates No.AD734143 dated 01 December 2006 and issued by the Department
of Resources and Environment of Ho Chi Minh City (appendix 1), the property is
held under a lease term expiring in 2020 (appendix 2). The proposed development
property has a total land area of 12,573m2 located at 127 An Duong Vuong Street,
Ward 10, District 6, Ho Chi Minh City, is being used as the plant and factory for
production and business operations of the company.
Under the program to relocate the polluting enterprises into the industrial areas
and it’s surroundings as mentioned above, whether or not, SRF Company must
relocate their entire operations on that land into the industrial areas whether the land
lease contract through 2012; and whether this location affect to the operation of the
company in a positive or negative way.


2

To encourage the relocation of enterprises according to schedule, the Prime
Minister has issued regulations that the enterprises may change the Land Use
Purpose to continue to invest in projects if this location is suitable for land planning
and corporate business functions are suitable for investment projects.
Thus, if SRF Company has a suitable development plan on this land, then it

will create two major advantages for company:
 To get the preferential land price at the state price, not at the market
price.
 To utilize the existing land for investment because where SRF
Company buy this land or not, SRF Company must pay the rent
charge until 2020.
Realizing that the demand for real estate is very high because urbanization and
industrialization are being encouraged to develop by the government, and Ho Chi
Minh City, one of biggest cities where is focusing on building development and
investment. Although real estate market is suffered from indigestion in a number of
segments, but the picture of property market in 2012 is quite bright because source
of the market supply and demand is still so high.
Also referring to some of the state-owned enterprises that has been invested on
real estate field and built the complexes after equitization, such as Pinaco,
Casumina Company…, SRF Company calculated the plan changing the land use
purpose to invest a project building. SRF Company decided to change the land into
a complex including residential categories and a commercial center, SRF Plaza, and
SRF Company has launched the proposed developing plan for this SRF Plaza
project.
1.2 Statement of the problem
For enterprises, the investing into a project is a professional operating and
method of business to make more profits, but this is also implicit risks. Typically,


3

for projects, it takes long-term, large capital so that the financial appraisal for
investment projects of enterprises is very essential. Therefore, the financial
appraisal of investment projects is essential. The ultimate objective of financial
appraisal is to answer the question: is the SRF Plaza project feasible in term of

finance or not? Because if the investment project is a financial feasibility project,
SRF Company will ensure the ability to withdraw capital, pay the interest, thus the
enterprises can achieve profitability and safety targets.
In short, to affirm certainty of the level of rationality and feasibility of the
project and investment decisions of the project, it need to consider and examines the
financial feasibility of the project, in other words, it need to evaluate the project.
So the problem resolved in this research is to evaluate and assess the financial
feasibility of the SRF Plaza project and to confirm that whether SRF Company
should change the current Land Use Purpose to invest in SRF Plaza project or not.
1.3 Research objectives
The purpose of research is to discover answers to questions through the
application of scientific procedures. The main aim of research is to find out the
truth, which is hidden, and which has not been discovered yet (C.R.Kothari).
Though this research study has its specific purpose, it falls into a number of
following objectives:
 To assess the financial feasibility and economic efficiency of SRF
Plaza.
 To assess the risks of the project.
 To conclude whether the SRF Plaza project should be accepted or not.
1.4 Research questions
The objective of the study described above will be specified with the research
questions:


4

 Should SRF Company continue to use the leased land to invest in SRF
Plaza complex project?
 What are the risks of the SRF Plaza project if it is accepted?
1.5 Scopes and limitations

This study is not intended to examine the SRF Plaza’s structure, design or
detail, and assume that all the requirements for constructing the SRF Plaza are to
ensure compliance with the current provisions of law.
This study limited research capacity in evaluating the financial feasibility of
the SRF Plaza project with input data based on proposed development plan
provided by SRF Company. This study is not interested in calculating the cost of
relocating the existing manufacturing operations to assess the benefits or losses of
this relocation, because whether this project exists or not, relocating of production
activities on this land into the industrial parks is required by the policy of the state.
1.6 Research Method
Mr. Robert B.Burns and Richard A.Burns (2008) wrote in his book that there
are three general purposes of carrying out research. The three purposes are
exploratory, descriptive and explanatory. The exploratory study helps us to acquire
the basic knowledge of problem. Descriptive research is suitable when the problem
is clearly structured at the same time, as the researcher has no intention to find
connections between causes and symptoms. Explanatory research is used when
researchers are identifying factors causing specific phenomena. The purpose of this
research work is mainly descriptive, as already stated the above research objectives.
Mr. Robert B.Burns and Richard A.Burns (2008) further explain in his book
that there are two methods that can be used when conducting research within the
social sciences, namely the qualitative method and the quantitative method. The
focus of qualitative research “is not on numbers but on words and observations;
stories, visual portrayals, meaningful characterizations, interpretations, and other


5

expressive descriptions” (Zikmund, 2000). Alternatively, quantitative research
should be used when determining the quantity or extent of some phenomenon with
numbers. Quantitative research aims at generalizing by looking at a large number of

entities and only at a few variables (Zikmund, 2000).
In this research work, the quatitative research method will be used.
Quantitative data has been collected mostly through secondary data, which already
has been collected by someone else for another purpose (Dr. Sue Greener). They are
collected from correlative sources:
 Proposed development plan of SRF Plaza project is provided by SRF
Company.
 Information on macro economic such as GDP, CPI, and inflation rate
is mainly from General Statistics Office .
 Information about interest rate is from the website of the State Bank
of Vietnam.
 Information on the real estate such as Construction Price Index,
construction cost, land price is from Decisions of the Government.
 Information on surrounding buildings about apartment selling price,
commercial office leasing price, plot rate, and so on are mainly from
annual reports and the website of CBRE (CB Richard Ellis)
()

and

Savills

( two leading global real estate service a
leading global real estate service in Vietnam.
 The apartment-selling price and time planning information of projects
surrounding SRF plaza are gotten from its own website.
 Some useful information gets from the internet web site.


6

At the end of data collection phase, the first stage of data analysis was to relate
the collected data to original research purpose; it helped to keep study on track.
After that, Microsoft Excel was used to arrange and calculate that data.
1.7 Structure of the study:
This research is structured into 5 chapters as following:
Chapter 1 will introduce the research including research background, research
problem, research questions, research objectives and research method.
Chapter 2 will provide a literature review and the theoretical background on
project evaluation.
Chapter 3 will introduce of SRF Plaza, also highlights a number of
characteristics and parameters to be used for analyzing, and then analyzes to
appraise the project feasibility.
Chapter 4 will analyze the financial risks of the project, define the risk events
affecting evaluation criteria, and calculate the risk level as well as risk probability
that the project can bear.
Chapter 5 will points out conclusions of the research, to conclude that whether
SRF continue to use the leased land to invest in SRF Plaza complex project or not,
and if the SRF Plaza project is implemented, which risks must be limited so that
SRF Company can get the maximize profits.


7

CHAPTER 2: LITERATURE REVIEW
This chapter aims to discuss five major parts of the research questions from
theoretical point of view. The first section reviews the theoretical background on
project evaluation. The second one reviews the real estate market. The other one
review the building complexes in Viet Nam in general and Ho Chi Minh City in
particular. Then, a summary of key findings from these parts is presented with a

justification of choosing the research topic. And the last one will mention about
project appraisal methods.
2.1 Project valuation
2.1.1 What is the Project valuation?
According to Fataheh Zarinpoush for Canada Volunteerism Initiative, Imagine
Canada (2006), Project evaluation is a process of collecting and analyzing
information in order to understand the progress, success, and effectiveness of a
project. Evaluation is an important aspect of project management. It can facilitate
the successful completion of the project, and inform decisions about the future of
both the project at hand and other projects.
2.1.2 Why is project valuation important?
According to the Joy Frechtling Westat (2002), there are two very important
points here.
First and foremost, evaluation provides information to help improve the
project. Information on whether goals are being met and on how different aspects of
a project are working is essential to a continuous improvement process. In addition,
and equally important, evaluation frequently provides new insights or new
information that was not anticipated.
Second, evaluation provides information for communicating to a variety of
stakeholders. It allows projects to better tell their story and prove their worth. It also
gives managers the data they need to report “up the line,” to inform senior decision


8

makers about the outcomes of their investments. Outcome evaluation assesses the
extent to which a project has affected participants or environment. It focuses on
immediate, intermediate, or ultimate outcomes that are attained as a result of
completing the project. The results of outcome evaluation should identify or
anticipate both the desirable and undesirable impacts of the project. Outcome

evaluation can also determine how the needs that gave rise to the project were
satisfied, or whether these needs still exist.
Figure 2.1: The project development/evaluation cycle

Project
Planning/modification

Project
Evaluation

Needs assessment and
collection of baseline data

Project
Implementation
(Source: Joy Frechtling Westat, 2002)
The purpose of any evaluation is to provide information for action (e.g.,
decision-making, strategic planning, program modification). Once evaluation
information is available, it should be distributed among the project stakeholders and
integrated into management practices. If this is not done, evaluation is a waste of
organization resources. The results of project evaluation can be used to:
 Identify ways to improve or shift project activities,
 Facilitate changes in the project plan,
 Prepare project reports (e.g., mid-term reports, final reports),


9

 Inform internal and external stakeholders about the project,
 Plan for the sustainability of the project, learn more about the

environment in which the project is being or has been carried out,
 Learn more about the target population of the project,
 Present the worth and value of the project to stakeholders and the public,
 Plan for other projects,
 Compare among projects to plan for their future, and
 Make evidence-based organizational decisions.
2.2 Project Appraisal Methods
Project appraisal techniques are used to evaluate possible investment
opportunities and to determine which of these opportunities will generate the best
return to the firm’s shareholders (Glen Arnold). There are two types of project
appraisal techniques: non-discounted cash flows and discounted cash flows.
The Non-discounted cash flows method is used when the use of discount or
interest rate is not appropriate; the technique includes the following concepts: cutoff
period, pay back period, simple rate of return, and net average rate of return. Each
has its advantages and disadvantages; however, they are all share one common
thing: They did not consider “the time value of money”.
The Discount Rate method is the rate of interest society should charge itself
for the opportunity cost of time. An appropriate discount rate is that rate which
represents the rate of return an alternative investment of equal degrees of risk. The
technique includes the following concepts: Net Present Value (NPV), Benefit-Cost
Ratio (BCR) and Internal Rate of Return (IRR). The Components of the discounted
techniques of Cost- Benefit Analysis are Costs, Benefits, Interest Rate (discount
rate), Life span of the project (time).


10

The Net Present Value and internal rate of return, examples of discounted cash
flows, are in use in many large corporations and regarded as more effective than the
traditional techniques of payback and accounting rate of return, there, the Net

Present Value (NPV) method is used by 75% of firms when deciding on investment
projects (Glen Arnold). Therefore, to evaluate the feasibility of the SRF Plaza
project, NPV and IRR methods are used in this research. The NPV decision rule
assumes that project-generated cash flows are reinvested to earn a rate of return
equal to the discount rate used in NPV analysis. While, the IRR method assumes
project-generated cash flows are reinvested to earn a rate of return equal to the IRR
of the project that generated those cash flows. Besides NPV and IRR methods,
Benefit – Cost Ratio (BCR) will be also used to evaluate the feasibility of the SRF
Plaza project.
2.2.1 NPV Method
Net Present Value (NPV) is the difference between the present value of all
cash inflows and cash outflows associated with an investment project (Binh, 2009).
The NPV establishes whether or not the investment project is an acceptable
investment, given the return the investor requires from the investment.
In order to calculate the NPV, the interest rate used for discounting the cash
flows needs to be determined. The interest rate is often referred to as Minimum
Attractive Rate of Return (MARR) and it represents the rate at which the investor
can alternatively invest his money, i.e. the return of the most preferable alternative
investment. The planning horizon of the project also needs to be determined, and the
cash flows for each period of the planning horizon projected. It reduces a steam of costs

and benefits to a single number in which costs or benefits projected to occur in the
future are discounted (Glenn P.Jenkins and Arnold C.Harberger, 2005).
The principle problem associated with using the NPV method is the
determination of the appropriate discount rate.


11

NPV is so far considered as superior to all other methods (Amman & Jordon,

2005).
It is calculated using the following equation

(Source: Amman & Jordon, 2005, Project Analysis and Appraisal)
Where: Bi: benefit of project
Ci: Cost of project
d: discount rate
The criteria to evaluation the project: The project is feasible when NPV ≥ 0,
the higher the NPV the better is the project (Claude Jottrand).
2.2.2 IRR Method
Internal Rate of Return (IRR) is a concept based on the return on invested
capital in terms of a project investment. (Glenn P.Jenkins and Arnold C.Harberger,
2005 ). The IRR of a project is defined as that rate of discounting the future that
equates the initial cost and the sum of the future discounted net benefits.
It is a discounted rate that makes the NPV of a project equal to zero or its BCR
is one. It is calculated by using the following equation:

(Source: Binh, 2009, Th m đ nh d án đ u t )


12

Where:
Bi: benefit of project
Ci: Cost of project
The IRR is yet another figure of merit. The corresponding acceptance
criterion against which to compare the IRR is the MARR. If the investment’s IRR
exceeds the MARR, the investment is attractive, and vice versa. If the IRR equals
the MARR, the investment is marginal (Robert C. Higgins, 2009).
IRR is the norm to compare with the minimum acceptable rate of return

(MARR) of the investor, but MARR is an element changing over time and depend
on the market, so for a long-term project such as SRF, the IRR method is used as
support, or confirm the feasibility of the project.
2.2.3 BCR Method
A benefit-cost ratio (BCR) is an indicator, used in the formal discipline of
cost-benefit analysis that attempts to summarize the overall value for money of a
project or proposal. A BCR is the ratio of the benefits of a project or proposal,
expressed in monetary terms, relative to its costs, also expressed in monetary terms
(Anh, 2010). All benefits and costs should be expressed in discounted present
values.
Benefit = Present value of Benefit / Present value of Cost

(Source: Robert C. Higgins, 2009)
The criteria to evaluation the project: The project is feasible when BCR > 1
2.3 Making decision
The financial ratios of NPV, IRR and BCR are used to help the investor be able
to decide whether to invest in the project (Th y, Hoa, Ánh, 2009). According to Ari