Economic Oriented Appraisal:
The economic viability depends upon its profitability. A project without adequate profits or which is likely to incur losses, cannot be commercially viable. Economic viability can be carried out through projections of profitability for a period ranging from 3 to 10 years .The profitability of the project should be established on a long term basis, keeping in view a spread of 5 years, after a reasonable level of capacity utilization is achieved.
The economic oriented appraisal includes the following;
- Preparation of projected profitability statements for a period of 5 to 10 years.
- Calculations of certain ratio to ascertain economic viability like debt service coverage ratio, pay back period, average rate of return, net present value, break even sales & internal rate of return.