Beruflich Dokumente
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1. Name -
2. Reg. No. -
3. Course No. - NCP 29
4. Course Title - Construction Finance Management &
Cost Accounting
5. Assignment No. - 4 (FOUR)
ASSIGNMENT
An offer has been given by a Charitable Trust to develop and build a facility on a
10,000 Sqm of plot in a prime locality of Pune where 5000 Sqm of area will be
used by the trust housing, health facilities for senior citizens. 5000 Sqm will be
given free to developer as a cost of development.
Cost of land is Rs. 10,000 / Sqm.
Specifications for flooring:
10% Granite
40% Kota Stone
50% Mosaic cement tiles
Discuss the financial viability of the project and the financial planning of the
project. Developer would like to have minimum 18% net profit on his investment.
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Developer can invest only Rs 10 lakhs as his own funds and can raise not more
than Rs 50 lakhs as bank loan.
PROPOSED COMPLEX:
The building itself will act like an exhibit, as it will be based on latest
technology of constructi on. The building will be of framed structure,
Structural glazing, external cladding using composite aluminum
secti ons will also be applied. Beside these fi nishes for internal as well
as external will be of the best type prevailing in the industry referring
to Class- a specifi cati ons..
To uti lize the space provided by Charitable trust for a social &
noble cause.
To provide a bett er place for senior citi zens.
To make the society aware about the responsility towards our
elders.
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Faciliti es to be provided:
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PROJECT IMPLEMENTATION SCHEDULE:
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EXECUTIVE SUMMARY
A Civil Works
-Construction of Main Building Sq mts 16000 5000 8 Trust +
developers
share
B Services & Utilities 0
- Fire Fighting L/s 1 2500000 0.25
- Elevator Nos 4 1700000 0.68
- Electrification L/s 1 0.3 0.3
- Plumbing L/s 0.2 0.2
C Interiors
- Finishing Items Sq mts 1000 1000 0.1
- Furniture L/s 500000 0.05
- Miscellaneous Items L/s 5000000 0.5
F External Site Development L/s 5000000 0.5
Calculations
Total land area with developer Sq. Mts 5,000.00
Total built up area on G.F Sq. Mts 4,000.00
Common area on G.F including foyersSq. Mts 750.00
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,staircases etc
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TERM LOAN INTEREST
AND REPAYMENT
SCHEDULE
Sufficiency of –Design: The responsible person has to check & satisfied himself before
regarding correctness and sufficiency of the design for the works. prices shall, except
as otherwise provided, cover all its obligations under the contract and all matters and
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things necessary for the proper completion and maintenance of the works. The
design in itself should be complete and should cover all the points required in a
finished building.
A project involves the current outlay (or current and future outlays) of
funds with the expectati on of getti ng future benefi ts. While capital
expenditure decisions are extremely important, they also pose
diffi culti es. Capital expenditure decisions involve substanti al
investment. Due to the inherent uncertainty, future predicti ons
become diffi cult. It is diffi cult to identi fy and measure the costs and
benefi ts of a capital expenditure since they are spread out over a long
period of ti me, usually 10 to 20 years for industrial projects and 20 to
50 years for infrastructure projects. Capital expenditure decisions are
irreversible; a wrong capital investment decision oft en cannot be
reversed without incurring a substanti al loss. Capital loss increases
with advances in technology. Capital investment decisions have an
enormous bearing on the future of an organizati on. Capital budgetary
proposals, therefore, demand a conscious approach in the early stages
of the project formulati on.
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methodology of the project budgeti ng. The capital budgeti ng process
involves the following steps:
Operati ng Cash Flows. These are the relevant cash infl ows and
outf lows resulti ng from the operati on of the project during its
economic life.
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Operati ng cash infl ow in a given year= Profi t aft er tax +
Depreciati on + Other non-cash charges + Interest on long-term debt
– Tax rebate
Terminal cash infl ow = Post -tax proceeds from the sale of capital
assets + Net recovery of working capital margin + tax adjustment,
where applicable.
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Investment planning horizon of the fi rm. It is the ti me period
which a fi rm wishes to consider for the investment analysis. It
varies with the complexity and size of the investment. For small
investments (say, the installati on of a pumping set), it may be
fi ve years; for medium sized investments (say, purchasing a bull
dozer or installing a readymix concrete plant), it may be ten
years, and for large–sized investments (say, setti ng up of a new
pre–cast concrete factory), it may be fi ft een years.
Aft er the capital costs and cash fl ows are computed, the next step is to
analyse the fi nancial worthiness of the investment proposal. There are
many methods for analysing investment proposals for making fi nancial
decisions. The commonly-used decision criterion can be divided into
two broad categories, i.e., discounti ng criterion and non-discounti ng
criterion.
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Discounti ng criterion. These are based on net present
value, internal rate of return techniques and cost-benefi t
analysis.
Net Present Value (NPV). It is the total of all the cash fl ows, out and
in, over the product / plant lifecycle. The Net Present Value (NPV) is
calculated as follows:
Note.
1) The expected future net cash fl ows (Infl ows – outf lows) are
discounted at the cost of capital (r) to the base year (present ti me) to
obtain the present value (PV) of these fl ows. Therefore, it is assumed
that all future proceeds can be invested by the organizati on at the cost
of capital.
2) The initi al cost of the investment (1) is subtracted from the present
value (PV) to obtain the net present value (NPV) of the investment.
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3) If the cost of the investment is spread over more than one year, the
future cost must also be discounted at the cost of capital to the base
year.
t n
NPV NCF /(1 r) n Investment
t 1
where NCF1, NCF2, NCF3, …… NCFn, are the net cash fl ows (NCF) for
the respecti ve years, r is the cost of capital and n is the expected life
of the project.
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NCF1 NCF2 NCF3 NCFn 5
0= 2
3
+ ........... h
Investment
(1+r) (1+r) (1+r) (1+r) 2
where all the terms have the same defi niti ons as those used in the NPV
method.
IRR can be found using trial and error using PV tables. In the IRR
method, it is assumed that all the future proceeds can be invested at
the IRR rate.
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C. Working capital margin 10
D. Revenue 126.0
E. Annual operating costs 105
F. Depreciation
G. Interest on short–term 9.0
bank
Borrowings
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Q. Terminal cash flow
(M+N)
R. Net cash flow (O+P+Q) -115 10.4
The pay–back period method does not take into considerati on the ti me
value of money and as such, can lead to incorrect results. If the
expected future net cash fl ows can be discounted at the cost of capital
to the base year (present ti me), then the payback period ranking
conforms to the results obtained from NPV and IRR methods.
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Benefi t-Cost Rati o. It is the rati o of the present value of benefi ts to
the initi al investment. In other words, it measures the NPV per rupee
of outlay.
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NCF1 NCF2 NCF3 NCFn
0= 2
3
+ ........... Investment
(1+r) (1+r) (1+r) (1+r) h
By trial using stati sti cal table, r = Y
Recommendati ons:
These are a rough schemati c planning of the project. Detailed planning
can be done aft er preliminary design as well site survey and
market survey is done.
Reference:
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