Article Preview
TopIntroduction
An investor is aiming at getting the most return on its investment. He is considering three of the most profitable projects in the city of Montreal. A feasibility study is required in order to decide which of these projects is the most profitable. Achieving this study is the only possible way to conclude an informed based recommendation on which of the four alternatives to be considered. These four alternatives include: 1) to buy a piece of land and sell it after nine years, 2) to buy a piece of land on which an office building is constructed, 3) to buy a piece of land on which a shopping center is constructed, and 4) to buy a piece of land on which a multistory parking building is constructed. The required data which include engineering specifications, drawings, design and economical aspects are fetched from different resources in literature and current practices. Some assumptions are made whenever confronting lack of data.
The main objective in this report is to study, in depth, the considered alternatives and to figure out the most feasible option for the investor to achieve maximum profit. To do so, certain essential steps are followed before recommending the final decision. The first step is to define the alternatives according to the current market data, investor’s budget and other binding circumstances. Second step is studying and assuming, whenever needed, the data associated with each alternative. Third step is proceeding with feasibility study through utilizing various economical methods and techniques. Fourth step is performing some supplementary analysis techniques such as risk analysis and sensitivity analysis to account for any uncertainties in the assumptions. Finally, the best alternative is suggested to the investor based on the results of the aforementioned analysis. The project’s feasibility study phase incorporates an evaluation and analysis of the potentials of a proposed project to support the process of a decision making. The project definition and the early decision making is the most critical stage to the overall success of the project. According to Kerzner (2006) feasibility study phase can be defined as: “The feasibility study phase considers the technical aspect of the conceptual alternatives and provide a firmer basis on which to decide whether to undertake the project”. Economic feasibility study of a construction project is the most important step in ascertaining the go-ahead decision for any project and is based on consistent and standard procedures which will avoid any misleading or inadequate information. Every possible effort must be made to ascertain that the analysis made is based on the reasonable forecast and reliable information. As investments have many differences such as project length or initial investment, it is necessary to calculate the feasibility of an alternative based on common factors. There are different methods used to measure the worth of a single investment and to compare its profitability against other alternatives. The most commonly used methods of analysis include net present value, future equivalent method, annual equivalent method, internal rate of return, external rate of return, Capitalized equivalent. There are two main methods for the comparison of the ranking approach and incremental approach. In ranking approach, alternatives are ranked based worth such that each alternative is evaluated individually, and the best option is then selected. The selection criteria is the project that generates the maximum profit or the lowest cost option. In ranking approach, alternatives are arranged in ascending order based on the initial investment cost. Transactions of lower initial investment are then subtracted from the higher one before applying any of the analysis methods to determine the feasibility of the newly resulted cash flow.