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Feasibility and Economic Justification Analysis

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Evaluate the feasibility of and economic justification (if any) for building a new liquid chemicals distribution facility near New York City.

In speaking over the telephone with the sales/marketing managers for the Industrial Chemicals and Specialty Chemicals divisions, they point out that the Northeast is the most densely populated region of the country and that two of Canbide's competitors already have distribution facilities near New York. Without the facility, they jointly estimate that market share in the region will decline by about 5% per year for the next five years, then stabilize there. With a new facility, they jointly estimate that regional market shares will increase by 10-15% per year for the next three years, then 5-8% for the next two years. The increase in market share is equivalent to a 15% increase in the annualized sales volume.

You stop by the central records storage and request copies of the two previous studies that looked at building a new liquid chemicals distribution facility in the Northeast. Both of these studies assumed that, in order to minimize product transportation costs, liquid chemicals would be delivered to the new facility by an ocean-going barge. (On a cost per pound-mile basis, trucking costs are more expensive than rail travel. Rail is more expensive than barge, which is slightly more expensive than sea-going ship.) Both analyses found that the cost of construction plus the cost of operation plus the cost of transportation (from the barge to the facility and from the facility to the customer) out weighed the potential growth in sales.

You decide that the former analyses are sound, but you need to come up with a recommendation. You examine a detailed map of the Northeast and find that one city in eastern PA is located at the juncture of three interstate highways that lead to major population centers. You then look at a sectional map showing rail lines and discover that two major railroads also serve that city. You decide to propose an "in-land" location that will receive liquid chemical products by rail and make shipments by tank truck, but including ship or barge shipments may not be completely excluded.

What kind of data will you need to fully perform your analysis? Remember that adding a new distribution facility will reduce the volume through other facilities. Transportation costs will clearly be affected; instead of shipping products by truck from Charleston, SC (the nearest existing facility), products will be shipped from eastern PA to the Northeast. A new facility will also affect inventory levels (and valuations). Which products will you propose to distribute through the new facility? How will you estimate the construction costs of the new facility? How will you estimate the cost of real estate for the new facility? How will you estimate the operating costs of the new facilities?

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// Feasibility analysis brings out the chances of the project being successful. Before writing a feasibility report, we have to first understand what exactly we mean by a 'feasibility report' or what are the various factors which should be studied etc. To begin the report, we have to start with a short introduction of the topic.//


A feasibility analysis seeks to determine whether the project is prima facie worthwhile and what aspects of the project are critical to its viability. It results in a reasonably adequate formulation of the project in terms of location, production technology, production capacity, material inputs, etc. and contains a fairly specific estimate of the project cost, means of financing, sales revenues, production costs, financial profitability and social benefits (Agarwal, N.P., & Mishra, B.K., 2007). It helps in assessing the practicality of starting a new value-added business or restructuring or expanding an existing business. It gives important information needed to make the critical assessment of whether to go ahead with a business venture.

// After giving a brief description of the process, we will discuss the kind of data used for performing such an analysis. A feasibility analysis requires various kinds of data. Here, we would start with market analysis and financial analysis.//

The kind of data required to perform the analysis:

A feasibility analysis is a multi-dimensional analysis and is a vital exercise that can be carried out on the following grounds:
Market analysis: The first step in the feasibility analysis is to estimate the potential size of the market and the market share that is likely to be captured by the product proposed to be manufactured. This is necessary because the viability of the project depends critically on whether or not the estimated sales satisfy the demand for the product or services. To ascertain this, an intelligent and in-depth study of variety of information is required. The data mainly relates to the following:

- Pattern of consumption growth
- Supply position
- Composition of the market
- Nature of competition in the market
- Income and price elasticity of demand
- Consumer behavior
- Availability of substitutes
- Distribution channels
- Marketing policies
- Administrative, legal and technical constrains
These various types of information may be gathered from primary and/or secondary sources. ...

Solution Summary

This solution is comprised of a response of over 1500 words which thoroughly discusses how to construct a feasibility analysis properly so the decision of building a new chemical distribution facility can be made. This response is designed to act as an outline of how this analysis could potentially be structured and contains valuable subject material related to this topic. One reference is also included.

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Policy Analysis Multiple Choice Practice Problems

Question 1
A _______ is an economic justification for government involvement in a policy problem.

a. policy impact
b. market failure
c. policy subsystem
d. referendum

Question 2

________refers to the processes by which government structures and authority are established and maintained.

a. Separation of Powers
b. Federalism
c. Policy analysis
d. Politics

Question 3

The formation of the __________ caused one of the largest federal reorganizations in history.

a. Department of Environmental Protection
b. Department of Education
c.Department of Health and Human Services
d. Department of Homeland Security

Question 4

There has been increased interest in recent history for _________ the transfer of more authority to state government.

a. decentralization
b. deregulation
c. federalism
d. mandates

Question 5

The first step in the policy process model is typically:
a. policy evaluation
b. agenda setting
c. policy implementation
d. policy formulation

Question 6

Which of the following is considered a redistributive policy?

a. Pell grant problems
b. workp1ace safety regulations
c. Social Security
d. crib safety regulations

Question 7

What is the president's major forum for agenda setting and announcing the coming year's

a. the State of the Union Address
b. the weekly breakfast with congressional leaders
c. cabinet speeches and briefings
d. daily news briefings

Question 8

When policymakers want to take a population's thoughts about a policy into consideration, they take
part in a:

a. democratic political process.
b. rational analysis
c. rational choice.
d. value critical approach.

Question 9

Which of the following policy analysis criteria is used if the acceptability of a particular alternative to
interest groups, the general public, or politicians is a concern?

a. political effectiveness
b. efficiency
c. equity
d. political feasibility

Question 10

________________ tools encourage the target population to participate in and find out about a policy issues

a. Learning
b. Capacity-building
c. Hortatory
d. Authority

Question 11

____ _ is probably the government's best known tool in public policy.

a. Charging fees
b. Spending money
c. Education
d. Regulating

Question 12
Which of the following criteria for evaluating public policies deals most explicitly with whether the
program achieves its goals or not?

a. equity
b. efficiency
c. effectiveness
d. equality
Question 13

__________ requires knowledge of who the major actors are in the policy subsystem and how
much they may support a particular alternative.

a. Program evaluation
b. Political feasibility analysis
c. Risk assessment
d. Cost-benefit analysis

Question 14

Which government office is in charge of monitoring how other agencies conduct cost-benefit

a. Office of Cost Efficiency
b. Office of Management and Budget
c. Council of Economic Advisors
d. Council of Accountability

Question 15

Concern about the reaction of interest groups to a proposed policy alternative is addressed by

a. social effectiveness.
b. administrative feasibility.
c. political feasibility .
d. technical efficiency.

Question 16

Which of the following institutions is responsible for initiating the budget process?

a. Department of the Treasury
b. Federal Reserve Board
c. Congress
d. presidency

Question 17

Sales tax can be problematic because of which of the following criteria for evaluating tax policy?
a. distributive effects
b. buoyancy
c. visibility
d. collect ability

Question 18

________________ is one way to use policy to lower inflation.

a. Increasing income taxes
b. Decreasing interest rates
c. Standardizing interest rates
d. Standardizing income taxes
4 points

Question 19

In Dye, learning about the consequences of public policy is often referred to as

a. policy advocacy
b. policy evaluation.
c. policy analysis .
d. policy description.

Question 20

In Dye, studying the consequences of public policy decisions is referred to as

a. agenda setting
b. policy advocacy
c. policy evaluation
d. policy analysis

Question 21

In Dye, one problem that researchers have in their attempt to find solutions for public problems is

a. an inability to quantify data.
b. a lack of understanding of the scientific method.
c. a disagreement about what the problems are.
d. the lack of understanding of the social and economic environment.

Question 22

The most serious reservation about policy analysis is the inability to make accurate predictions
because of

a. lack of accurate data.
b. the complexity of social problems and human behavior.
c. value conflicts among researchers.
d. the Hawthorne effect.

Question 23

In Dye, which of the following is not part of the policy process?

a. agenda setting
b. policy evaluation
c. problem identification
d. policy input

Question 24

In Dye, group theory views public policy as

a. the balance that is achieved between competing interests.
b. the desires of the elites.
c. the continuation of past policies.
d. the most cost effective alternative.

Question 25

In Dye. public choice theory,

a. views individuals as reacting very differently in politics than in the marketplace.
b. does not agree with the Lockean social contract view as 10the origin of government.
) c. helps explain why political particles and candidates do not like to offer clear policy
d. does not examine the economic cost of externalities.

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