Envirogreen has conducted, and continues to conduct, numerous feasibility studies over the years.
What guides us is matching different types of investors (personal risk level) to different businesses on an objective level. We conduct a thorough examination of the investor's personality, financial capacity, family situation and emotional state, and based on this data we assign them to various categories such as risk-loving, risk-neutral or risk-averse, including placement anywhere between these categories."
Every business has its own objective risk level, but the economic feasibility study also factors in the risk level unique to the investor themselves.
In other words, only by combining the objective and personal characteristics can we produce a feasibility study that comes close to what the investor requires when determining whether a venture or business is viable for them.
It should be noted that an objective risk level based on the characteristics of the business is a weighted interest rate composed of what is known in the market, such as the securities market, the price of money, and the return investors expect in a given sector.
This interest rate does not, in itself, reflect any single-valued reference to the investor, their personal characteristics, or the way they relate to the risk they face.
You have come to the right place, where Envirogreen knows how to assess different types of businesses on an objective level and, beyond that, on a personal level that requires the ability to understand the unique characteristics of investors, going beyond the theoretical knowledge of the economic feasibility study as a whole.
The field of economic studies encompasses many concepts, ranging from strategic, business and financial assessments to a feasibility study from the point of view of a specific investor as a function of their cost of capital.
Investors differ, and therefore the economic feasibility study, once the strategic, marketing and financial issues have been examined, must be tailored to an investor with particular characteristics. Not every accounting profit establishes that economic feasibility exists, since investors' risk levels vary and their perception of the issues depends mainly on the return and risk that characterize them.
First, feasibility is examined, which includes a strategic business plan, a marketing plan and a financial plan.
Before proceeding to tailor the results to a particular investor or investors, it is necessary to examine whether the venture or the matter under review stands on its own โ in other words, an arithmetic accounting examination of the results, including the preparation of cash flows under various scenarios.
The sensitivity tests of the relevant variables are of great importance.
These tests examine to what extent a change in one variable or another will affect the business results, or what the limits of change are that keep the venture at a level of business feasibility.
Once the sensitivity tests have been carried out, they undergo the test of strategic feasibility and the extent to which they are meaningful in determining investors' risk levels.
Finally, we proceed to the economic feasibility study for the interested investor.
For every type of business, investors of different types can be matched. First, there are high-risk businesses, average-risk businesses and risk-free businesses. In the same way, we match businesses with certain risk levels to investors with different characteristics. For example: risk-lovers, risk-neutral investors and risk-averse investors. For example: an investment of NIS 10 million is high-risk for an investor without financial means, but relatively low for large institutional investors. In other words, when examining the type of investor, one must, among other things, understand and analyze the risk level in terms of the investment amount. The type of business itself also determines the risk level. For example: investing in start-up companies differs substantially from investing in energy companies. In energy companies the investment amount is high in exchange for a stable return over time, whereas in start-up companies we anticipate about a 5% chance of reaching the market stage. The degree of knowledge and experience investors have in a particular sector lowers or raises the risk level they will agree to be exposed to, since they have a certain emotional confidence in the sector. Likewise, there are companies that specialize in assessing ventures and businesses, and their judgment, as well as their learning ability, provides a sense of confidence that they will overcome any obstacle. In summary, like financial characteristics, the emotional component also plays a part in determining the investor's profile. On risk: the objective and internal risk characteristics are numerous, and it is advisable to identify, define and analyze them.
The discount rate reflects the risk level and return that investors wish to receive as a function of an objective risk level and a personal or internal risk level. The discount rate itself is composed of a risk-free interest rate, the price of money, and the expected return. The discounting method is carried out by dividing the accounting results by that discount rate + 1. The further one moves from the date on which the assessment is performed, the greater the uncertainty and the risk along with it. We therefore divide the discount rate + 1 by the exponent of the period. For example, in the second period the division will be to the power of 2, in the third period to the power of 3, and so on (present value). The sum of the present values of all the periods is the net present value of all the periods combined.
The initial investment is recorded in period zero, or a period with no discounting at all. Its total amount will therefore be in the same accounting values. On the other hand, the income or profits will be discounted in the following periods, and their sum will be lower than their simple accounting value. Therefore, the higher the discount rate, the less attractive the results we expect compared with the accounting results. This is the reason that at certain discount rates we will not obtain economic feasibility, whereas at other rates we will. In other words, the type of investor and their characteristics largely determine the conclusions of the economic feasibility study, and it differs from investor to investor.
In Summary โ The economic feasibility study differs from an accounting examination, and the discount rate through which the accounting results are discounted is of decisive importance. The type of investors and businesses being examined is what determines the discount rate and, as a result, changes the conclusions reached.
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