Definitions :
1.Fixed Asset Coverage Ratio	=	Fixed Assets- Fictitious Assets Term Loan

Shows the security of term loan formed by the Fixed Assets of the project.

It should be >= 1.5 (Other wise Collateral security will have to offer to secure term loan)

2. Debt Service Coverage Ratio

=

Net Profit+Depriciation+Interest Interest +Instalment of Term Loan

Shows the capability to repay the liability of the project annually.

It should be > 1 for any individual year and >= 1.5 on an average for the first 4 years.

3. Present Value of a project

=

Sum of the discounted future benefit of the project for it’s whole life.

The discounting factor is pre-determined considering opportunity cost.

As per Planning Commission discounting factor is 15% & Life of the Project is assumed as 10 Years.

4. Net Present Value of a project(NPV)

=

Sum of the discounted future benefit of the project for it’s whole life – Investment(may be discounted ,if investment through several years).

To invest in a project NPV must be +ve.

5. Opportunity Cost

=

Benefit from next higher Alternative investment with similar risk.

6. Internal Rate of Return(IRR)/     Financial Rate of Return(FRR)

=

Rate of discounting factor at which NPV is Zero.

7. Economic Rate of Return(ERR)

=

Same as IRR but in this case social benefit is to be considered and Intra-farm Transaction will not be considerd.

8. Benefit Cost Ratio(BCR)

=

Benefit of the Project Cost of the Project

Benefit Cost Ratio(BCR) will have to be >1.

9. Discounted Benefit Cost Ratio

=

Discounted Benefit of the Project Disconted Cost of the Project

Discounted Benefit Cost Ratio will have to be >1.

10. Break-Even Point (BEP)

=

No Profit , No Loss Situation of a Project

Sales = Cost

Sales = Fixed Cost + Variable Cost

Sales -  Variable Cost = Fixed Cost

Sales(Sales -  Variable Cost) = Fixed Cost

Sales

Sales=                                   Fixed Cost

            (Sales -  Variable Cost)

                                                Sales

11.Contribution Margin or P/V Ratio = (Sales -  Variable Cost)

                                                                               Sales

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