Transport Cost-Benefit Analysis and Investment Evaluation - Port Phoenix - Case Study Example

Name: Lecturer: Course name: Course code: Date: 1.0. Executive summary Port phoenix is one of the oldest ports that that still serve many regions. The port is in strategic place that capture the business companies and individual and as a result, the port is a central hub for economic development. In the recent years, there has been as increase in the growth rate and as well the number of containers entering and living the port and consequently, this has a lead to emergence of traffic jam within the port. A project is foreseen that will either lead to expansion of the existing port terminal or construction of a new port terminal based on the cost and advantage that will be derived from the cost analysis on the project viability analysis below. 1.1. Description of options evaluated. The project committee has two options to execute. The project can either consider expanding the existing port terminal or contracting a new terminal. The factor to consider in the project to consider as well as its viability is whether the project can returns cost of construction as well as ease congestion of trucks in the port and enhance the growth of the port, An ideal project in this regard will be the one that will command low construction cost with high returns inform of net present value from the investment. Other external factor to be considered are social benefit cost that the new project will b ring in to the community. The project committee currently ascertains whether the project considers both monetary and non monetary factors that ought to be satisfied. The project committee after getting contented with the cost of construction as well as the benefit that that e new project will bring in, must as well consider the social effect as well as the consequences that the new project investment will have on the aquatic life before concluding on the project viability. 1.2. Quantifiable impact of the project The prime cost that the project will consider is considering relevant and realist in relation to the current market price of the direct material as well as labor rate. Some of the factors that the project intends to consider in concluding on the quality of the direct material required is the current economic worth of the direct material their relevance in construction considering the geographic and climatic condition of the port as well as the durability of the material, the direct employed labor will based on the degree of skills require in every level and department of the construction and as a result, it can be concluded that the projects prime cost is exceedingly relevant with the construction budget and range. 1.3. Direct benefit of the project The project will lead to opening up of the region to global economy hence leading to expansion of the region economically as well as improving on the level of living standard of people leaving around the port, The project is intended to ensure also that the there is reduction of congestion in the port, this as a result would consequently lead to emergence of new market trend as well as taping of foreign investors into the economy hence leading to improvised gross domestic product and per capita income of individual in the country as well. The benefit of both expanding the port terminal as well as constructing a new port terminal id that it will increase the level of the containers that will be held for shipment as well as increasing on the level of job employment to be people living around as a result, the economy will be enhanced leading to reduction in the balance of payment. Non-quantifiable cost and benefit The Breakwater cost is considered non-quantifiable expense since, its value cannot be clearly be measured and thus the project committee estimate the cost based on the current economic condition as well as other internal factors that could contribute to its value. The estimate is presumed at a degree of confidence level. The project of expanding the port terminal The net advantage of expanding the port terminal is that, the project has short time to earn returns from investment. It can be depicted from the above data analysis that the expansion of the project is estimated to earn returns and reduced congestion at the port by the start of the financial year 2018-19.The short the project time completion, the higher the advantage of the project since, it implies that the port terminal is going to be opened within the short time possible and consequently, the initial cost of investment is going to be realized within the desired time as well as the earlier the expansion of the port terminal, the expansion of the economic growth is realized. The expansion of the port would ease congestion at the port and consequently cargo will be shipped faster. This would consequently create job opportunities was well as lead to expansion of economic growth and consequently improvement of the gross domestic product. Constructing a new terminal Constructing a new port will take 7 seven before it becomes fully operation and consequently implies that, the project will demand more construction cost since. In this regard, more strategic plans ought to be taken care off in order to get rid of [project delay as well unnecessary construction cost that might realized from the project. It is anticipated that the construction of the new port terminus would lead to generation of net present value which is quite lower as compared to the net present value of the expansion of the new project. In this regard, the project committee should consider expanding the port terminal since, the project is going to realize investment benefit as well as other economic befit within the shortest time possible. Risk assessment and sensitivity analysis In ascertaining the risk of the project viability, a sensitivity analysis on the project is performed the sensitivity analysis is tested based on the proposed discounting rate on the new project as well as employing the existing discounting rate to project and perfume a sensitivity analysis in ascertaining the net present value of the proposed value. The graph below depicts a sensitivity analysis test on the proposed project. The above graph depicts a sensitivity analysis performed on the existing g projects discounting rate as well as the proposed one. It can be clear observed that the existing under the existing discounting rate, the net present of the existing project is below both the proposed project of either project. Where a sensitivity analysis is performed and comparison be made within the two proposed option, it can be observed that expansion of the new port terminal will be ideal since, it has a higher net present value above the three option and has a result, it can be included that the project committee should consider expanding the port terminal since the project would realize net present value and other economic advantage within the shortest time possible. Selection of preferred option From the analysis on the project viability as well as ascertaining the effect of sensitivity analysis of different Net present values, it can be concluded that an ideal investment to expand the existing project since the project would take the shortest time possible as well as ensure maximum return inform of social benefit as well as enhancement of economic growth within the port. The data analysis depict that the project would generate high net present value as compared to construction of the new port terminal and consequently, this is a string indication that the project committee should consider investing on this project in order to save time and consequences of long project time to completion. The project should be keen on other external factors such as effect of ocean waves as well as too much rain that might affect project achievability since, poor project time in reality would lead to project deal as well as lose of project since, poor whether condition if properly not planned would lead to destruction of the port terminal in progress. Assumption in calculating the net present value The assumption in calculating the net present value and in concluding on the project option and its viability, the project committee assumed that the economic condition will remain favorable for unforeseeable future and as well as the anticipated growth will remain unchanged over the anticipated useful life of the project. Holding other factors constant, the project committee anticipates that the above assumption will be held valid since, they affect the achievability of the project as well as if well managed, they reduces project delay and enhances higher returns of the project within the shortest time. Conclusion and recommendation Expansion of the new port is ideal in that there is a lot of economic benefit that the nearing environment as well as the government will benefit. The economic growth will grow since reduction of congestion both shipping as well as the truck containers congestion would open up both interior as well as existing economic progression of the country. This would lead to growth of the economic growth as well enhancement of exchange rates. The consequence is that the country’s economic growth would increase as well as the living the standards of the individual would be enhanced. The project committee should ascertain other economic and external factors that might affect project achievability within the shortest time possible since, project delay would lead to unnecessary cost and even lead to waste of time and resource.IN this regard, an ideal project management should be the one that considers both the external and internal; factors that might affect the project, in this regard the project will be attained within the shortest time possible as well as there is reduction of project uncertainties and as well enhances project co p-etymon time and returns from investment inform of economic progression, enhancement of social cost benefit as well as improvement of the net present value from the project expansion. Appendices forecasting total container capacity Capacity utilization Growth rate 2014-15 2,073,126 97.0% 2015-16 2,151,905 100.7% 2016-17 2,233,677 104.5% 2018-19 2,390,034 1.07 2019-20 2,617,088 1.095 2020-2021 2,931,138 1.12 2021-2022 3,356,153 1.1145 2022-2023 3,926,699 1.17 forecasting the container exchange rate Total Container cargo exchanged Growth rate 2012-13 1924115 1.045 2013-14 2010700 1.09 2015-16 2282145 1.135 2016-17 2692931 1.18 2018-19 3312305 1.23 2019-20 4206627 1.27 2020-2021 5552748 1.315 2021-2022 7551737 1.36 2022-2023 10647950 1.41 growth at 3% for the next 15 years Pvifa 3%yrs^15(10647950)=127,114,536 containers Forecasting of monetary value and NPV of the projects Option 1; Extension of the terminal NPV for containers     Years Net revenue PVIF 5% present value 2018-19 97723360 0.9090 88830534.24 2019-20 17450600 0.8264 14421873.86 2020-2021 21813250 0.7513 16388294.73 2021-2022 272666565 0.6830 186231263.9 2022-2023 34083205 0.4241 101182811   total P.values 407054777.7 In terms of 15 years annuity discounting rate of 3% Growth rate at 5% infinity Pvifa 5%^15years*{407054778}=4,225,089,398 NPV of the ship           Years Net revenue economic cost Net revenue PVIF 5% present value 2018-19 2792096 300 837628800 0.9090 761404579.2 2019-20 3490120 300 1047036000 0.8264 865312431.8 2020-2021 4362650 300 1308795000 0.7513 983297683.5 2021-2022 54533313 300 163599939 0.6830 111738758.3 2022-2023 6816641 300 2044992300 0.4241 867281234.4   total P.values 3589034687 In terms of 15 years annuity discounting rate of 3% Growth rate at 5% infinity Pvifa 5%^15years*{8672812344}=159,664,707,506 Total NPV={Ship NPV+ container NPV} Option 2; Construction of new terminal construction of new terminal NPV for containers       Years Net revenue Pvifa 5% present value 2018-19 97723360 0.9090 0 2019-20 17450600 0.8264 0 2020-2021 21813250 0.7513 16388294.73 2021-2022 272666565 0.6830 186231263.9 2022-2023 34083205 0.4241 101182811 total P.values 303,802,369.6 Growth rate at 5% infinity Pvifa 5%^15years*{303802369.6}=3153364.7 NPV for ships NPV for ships           Years Net revenue economic cost Net revenue Pvifa 5% present value 2018-19 2792096 300 0 0.9090 0 2019-20 3490120 300 0 0.8264 0 2020-2021 4362650 300 1308795000 0.7513 983297683.5 2021-2022 54533313 300 163599939 0.6830 111738758.3 2022-2023 6816641 300 2044992300 0.4241 867281234.4 total P.values 1962317676 Growth rate at 5% infinity Pvifa 5%^15years*{1962317676}=20,368,858 Total NPV={Ship npv+ container NPv} NPv of container 315,336,470 NPv of ship 2,036,885,800 2,352,222,270 Total initial cost -503,030,000 NPV of the project 1,849,192,270 Read More