ETF2480: Business Modelling Assignment-1 (This is an individual assignment)

Due by 5pm 23 August 2012 Late submission incur a penalty of 10% per day delay
(New Found Apartments) New Found Inc. is planning to build a new set of apartments in a block of land near Caulfield Campus. The Managing Director (MD) of New Found has negotiated to buy a block of land which is of size 11250 square meters for $3,2XX,XX0. The apartment that New Found intends to build in Caulfield is somewhat like the apartments that New Found built recently near the Clayton Campus. So, the MD has a good idea about the size of (675 square meters) and the type of the apartment that could be built in the land near the Caulfield Campus. The estimated costs of construction are as follows: Construction cost: $450 per square meter Land preparation (earth moving, drainage work etc.) is estimated to cost $282,000. [The land is sloped hence there is some uncertainty about this cost] All apartments once built will be up for sale. The total area of the apartments that may be built on the proposed block of land should be no more than 60% of the size of the block of land. New Found Inc. plans to build the maximum possible number of apartments. The advertised selling price is $730,000 per apartment

The sale of apartments depends on the market condition at the time and the settlement will be at the end of the project completion time. The project period is 10 months. If lot of keen buyers can be found, all apartments can be sold at the advertised price (Optimistic scenario) Under normal conditions, only 60% of the apartments can be sold at the advertised price. (Most likely scenario) If the market is bad, only 30% of the apartments can be sold at the advertised price. (Pessimistic scenario)

At the end of the 10-month period, all unsold apartments will be sold to MONSU at a discounted price.

Servicing the loan The cost of developing the apartment is financed entirely by a bank loan taken in full at the start of the project.

The interest on the loan is 0.56% per month. Interest is paid at the end of the 10-month period and is calculated under the notion of compound interest.

The main decision that concerns the management of New Found Inc. is whether to build the maximum number of apartments possible and if so, at what price. They also need advice on the discount that they should give to MONSO on the advertised price of an apartment so that; Under the most likely scenario, New Found Inc. may get 60% of the profit that may be possible under the optimistic scenario. (5 marks) Under the pessimistic scenario, New Found Inc. may get 30% of the profit that may be possible under the optimistic scenario. (5 marks) You have done ETF2480: Business Modelling and therefore New Found Inc. management know that you are the most capable out of their new recruits (Business Analysts) who can help them here. So, do a good job on the following. Task 1. Construct a flow chart to reflect the business decision problem under the most likely scenario. (10 marks)

Task 2. Hence, set up three spread sheet models for the situations corresponding to the optimistic, most likely and pessimistic scenarios. (5 + 10 + 5 = 20 marks) Task 3. Copy the spread sheet model for the most likely scenario into another spread sheet. In that spread sheet, set up a macro assigned to an object of your choice to obtain the selling price of an apartment to MONSU to break-even. (5 marks) Task 4. Prepare a business report (according to the format suggested in week-2 lecture) to aid the New Found Inc. management in their decision-making. Include tables, graphs and diagrams where necessary. All assumptions made should be clearly stated. Attach the flow chart constructed in task 1and a copies of your spread sheet models in a CD to the business report. (30 marks) Note: 1. XX,XX is the last four digits of your ID. 2. Attach a completed assignment coversheet to the business report.

The aim of this assignment is to make you think and not to frustrate you with too many open-ended statements- enjoy doing it. Please do not consult your tutor about this assignment.