Economic Benefit Analysis Of LW Water Plant Project

LW waterworks project, builted by Zhengzhou Water Investment Holding co., LTD, is one of the key water supply projects of Zhengzhou during the Twelfth Five Year Plan period. The total investment of the project is nearly one billion yuan. It use the haigh-quality water from south-north water diversion. Its water supply capacity is400000tons. As a independent waterworks of municipal project, it should undertake social responsibilities and get economic benefit.The project applies new idea of water supply project construction. This paper conducts a comprehensive and targeted analysis and evaluation of the expected economic benefits for the water supply project, the purpose is to provide valuable for LW waterworks project management, so as to provide a reference for construction, operation and mangement of water supply project.It is expected that by the end of2015, the demand of water supply in zhengzhou will reach1.62million cubic meters, but the existing daily water supply capacity is only1.06million cubic meters, so LW waterworks project has good prospects for the market demand. The project construction investment mainly includes the construction of waterworks, water pipe lying, purchase of equipment and other instruments, engineering construction, basic reserve funds and loan interest, etc. The total cost is998.8365million yuan. Considering the state of zhengzhou, LW waterworks projects choose three financing ways—local finance allocates funds, credit loans, enterprise capital. The city finance capital is375.1252million yuan in total, takes37.56%. Zhengzhou water company will get the rest56.33%, that’s562.688million yuan.The enterprise capital of only takes a little share.The payback period of LW waterworks project is13.02years. According to the6%discount rate to calculate the net present value is98.6254million yuan, the internal return rate of the project is6.89%, the total assets return rate is8.47%, net capital profit rate is more than12.57%, all the data are better than the industry benchmark. The project break-even analysis shows that the project can achieve breakeven state when it has52.52%of the designed water supply capacity. The sensitivity analysis shows the project internal return rate is most sensitive to the water price. The profit of LW waterworks project can be realized when the daily water supply capacity is more than183800cubic meters. All the risks of th project as market risks, economic risks, policy risks, environmental risks are able to be undercontrol.In short, as long as we control the total project investment, choose lower cost capital financing plan, and ensure cash flows, the LW waterworks project after and can optimize the layout of water supply of zhengzhou city, raise the life level of southern zhengzhou residents, and can guarantee the reasonable main financial index as well as the considerable expected economic benefits.