International Journal of Management Science and Engineering Research Volume 1, 2014
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A Research on the Methods of Economics Evaluation and Analysis on the Tourism Investment Project Lai Yifei, Li Keyang
*
Economics and Management School of Wuhan University, Wuhan 430072, Hubei, China *lyf37319@163.com Received 4 April 2014; Accepted 16 April 2014; Published 21 May 2014 Š 2014 Science and Engineering Publishing Company
Abstract Economics evaluation and influence analysis of tourism investment project is the main content in the feasibility study. In oder to offer the reference for tourism investment plan and the tourism project development, this article covers areas investment estimation, financing, investment return, presents methods of economic evaluation on Tourism Investment Project. Keywords Tourism Investment Project; Economics Evaluation and Analysis
Introduction Accompanying with the fast development of the travel industry, the construction of all kinds of Tourist Sites, Entertainment Zones, Theme Parks and Hotels are speeding up, new investment projects are springing up grounds all over the country. Among them, many projects obtained success in economic, social environment, but there are also a few tourism investment projects failed, and cause huge losses. Reasons of the failure include: First, the tourism market's demand is ever changing and the market competition is heating up. Secondly, the tourism product itself is one-time consumption with very low customer repetition. The thirdly is that the tourism industry possesses characteristic such as strong dependence, connection, sensitivity and fragileness. All the above result in high risk of Tourism Investment, Many tourism construction projects investment inflate, construction period procrastinates or terminated midway, or attract inadequate business after opening. Therefore, it is necessary to conduct economic evaluation and analysis in the Tourism Investment Projects, and such evaluation and analysis is of
significant importance in promoting healthy, stable, sustainable development of the our country’s travel industry. The Investment Estimations and the Financing Strategy Tourism Investment Project estimations include: (1) Tourist interested spots with entertainment facilities. The total investments are divided into early stage, middle stage and future stage. The number of investments is allocated to each stage depending upon the plan of the project and future tourists visit forecast. (2) Infrastructure, (Transportation, Electricity, Communication, Water, Parking...etc.) (3) Tourists Service Design, (Travel Agency, Hotel, Shopping, Medical Facilities, Fire Safety, Consultation etc.) (4) Environment protection and other supporting facilities (Public Toilet, Monitoring Station, Greening Facilities) that are designed to serve the scenery area and tourists (5) Tourism Professional training programs including construction of training schools, on-job training facilities and tourism degree programs. (6) Tourism marketing and promotion projects. Investment estimations include market research, printing of marketing collaterals, sales personnel and media advertising, etc. The total investment estimation is based on the total of all sub-investments. An investment structure analysis is then conducted to analyze percentage of each investment among total investment, and evaluate the rationality of the investment structure. The capital investment of Tourism Investment Projects is great in capacity and time consuming, to resolve the issue of lack of investment and to improve the
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efficiency of capital utilization, investment channel is primarily from local government, social entities and foreign & private investment initiated by the government and tourism authority. Among them, infrastructure, green turning, and the environmental protection facilities mainly supported by the state and local government funds. The tourist interest spots and entertainment facilities are usually funded by a combination of government, foreign and domestic private investment. The tourist service facilities are invested mainly with social investment; Tourism professional training projects can be funded government coordinating with enterprises and individuals together; the investment of the marketing of tourism product is funded together by the government and the enterprises. The Financial Performance Analyze The financial analysis of the Tourism Investment Project differs from the financial performance analysis in the general feasibility study report. The needs of decision making can be satisfied by using net present value and watching payback period these financial indexes to steer financial evaluation to the investment layout The Net Present Value Analyze The net present value is one of the most important indexes in the appraisal. It not only computes the time worth of money, but also investigates inward cash-flow and the outward cash-flow in the length of life cycle of the entire project. The so-called net present value means the accumulated value of each dissimilarity hour dot's net cash flow computed according to estimated discount rate at the beginning of the period. The formula is: n
NPV = ∑ (CI t − COt )(1 + i0 ) −t t =0
In the type: NPV——net present value; CIt——the inward cash - flow of the t year; COt——the outward cash - flow of the t year; n——The time limit of project; i0——reference discount rate. Distinguish criterion:
For single item scheme, If the NPV ≥ 0, item should to accept; If NPV<0, item should to refuse. When several scheme compare selects, net present value the big scheme is better.(net present value the biggest criterion) Because of NPV>0, the rate of return of the scheme can not only hit the stated reference discount rate horizontal, but also acquire excess earnings present worth at this time; When NPV=0, the rate of return of the scheme just comes to a the horizontal with the stated reference discount rate request; When NPV<0, the rate of return of the scheme comes short of the horizontal with the stated reference discount rate request at this time. Inward cash - flow can be calculated according to per annual visitor quantity multiply by average visitor consumption. The items of cash flow including investment, taxes on income, loan interest, sales tax, the subtract depreciation. The investment outward cash-flow hypothesis is in the near, interim, long-term and each investment happens at the beginning of the period year. According to travel enterprise’s 40% pretax income rates, we can estimate other outward cash -flow is 60% subtract of the revenue annual depreciation, and should pay annually for 33% taxes on income expenses of taxations. The annual outward cash flow formula disclosures as follows: Annual outward cash flow = investment + the revenue × is 60% - depreciations + income tax The Pay Back Period Analysis Payback period is also an important index, which is the reflection of investment project funds payback. It means the time needed recover gross investment (including construction investment and the investment of the working capital) using the net earnings of the project (Including profit, depreciation...etc.). Generally, payback period is calculated from the year when investment begins. Static Pay Back Period The static payback period means the time which is needed to use net earnings per annum to recover all investments that start from the day construction commences. Usually, it is expressed in years. The expression type of the static payback period
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payback period.
for:
Establishing the reference payback period as Tb, the acceptance or reject standard is:
Tp
K = ∑ NBt
(2)
t =1
In the type: K——investment in the business;
If the TP ≤ Tb, the project then can consider reception;
NBt——the net earnings of the t year;
If TP>Tb, the project then should inflict refuse.
Tp——static payback period
Sensibility Analysis
If the net earnings of the investment item per annum is equal, the payback period can use type computation:
= TP
K + TK NB
(3)
In the type: NB——year net earnings TK——the project construction session For projects that have unequal net earnings per year, we can compute a payback period according to the cash flow stable of the financial analysis of the investment project, its formula is:
Tp= T +
The T year accumulates the absolute value of the net cash flow T + 1 year net cash flow
(4) In the formula: The T is the last year that shows a minus investment returns While using the static payback period to appraise investment project, we need to refer to similar projects’ historical data and investors’ expected
The sensibility analysis is an uncertainty analysis device usually used in the project economic effects appraisal. The sensibility analysis evaluates risk-bearing capability of projects through analyzing, forecasting the degree of major uncertain factors’ influence in a project, provides sound reference for decision making. There are many uncertainty factors influencing the project economic appraisal index, for example, sales volume of the product (output), sales price, primary material supply, power price, fixed investments, operating cost, construction period and product period are all included. Small change of some uncertainty factors might cause huge change on the appraisal index, and greatly impact the reliability of the project economic appraisal. These uncertainty factors are called sensitive factors; uncertain factors that won’t impact the appraisal reliability are called non-sensitive factors, as illustrated in Figure1.
NPV Annual Income from Sales
Amount of capital investment Operating cost
-10%
0
30%
Factor fluctuation percentage
FIGURE1 SENSIBILITY ANALYSIS
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Conclusion In order to select Tourism Investment Project scientifically and to realize anticipated target investment, we have to conduct feasibility study for Tourism Investment Project. Itâ&#x20AC;&#x2122;s essential to perform Tourism Investment Project economical effect appraisal and impact appraisal to ensure accuracy and science of the Tourism Investment Project. This article proposed the methods of economic appraisal for Tourism Investment Project, analyzed and discussed methods from different aspects such as investment estimation, financing strategy, financial return.
Ouyang Zhongjian, Engineering Economics, Ting Hua university publisher, 2008. Wang Pan-yan, Wang Yu-jie, On tourism Economic Analysis and Forecast in the Tourism Planning, Tourism Tribune , vol.4, pp.47-50, 2001. Weng Gang-min, Zhang Hai-yan, The risk analysis and the guard policy of the Tourism Investment Project, Techno economics and management research, vol.6, pp. 114-115, 2000. Wu jing, Construction and Evaluation of Index System of Sustainable Tourism Development: Based on Qingdao data, Inquiry Into Economic Issues, vol.10, pp.64-70, 2013. Xu Hong, Sichuan capability of receiving tourism income
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Dr. Lai Yifei (1964- ) is an Associate Professor in Economics and Management School of Wuhan University. His primary interests are teaching and research investment project economic appraisal. Li Keyang (1991- ) is a postgraduate in Economics and Management School of Wuhan University. His primary interests are project management and investment project economic appraisal.