DLK Builders

Group 1

INTRODUCTION
DLK Builders is contemplating to venture into a residential project Raja Chola Heights. It
has the experience of completing twelve such projects in the past. The facts of the case and
the contract between the owner of the land and DLK are as predictable below.
Total Area available

25000 sq.ft

Area available for construction

21250 sq.ft

Non-constructed area

3750 sq.ft

Non-constructed area available for sale by

DLK

1875 sq.ft

Owners share of non-constructed area

1875 sq.ft

Owners share of constructed area

10625 sq.ft

DLKs share of constructed area for sale

10625 sq.ft

DLK expects to sell the project on the opening day itself and it offers a price which is 20%
less than the market price. The sale price offered is Rs.8500 per sq.ft and the cost of
construction is Rs.3000 per sq.ft. DLK expects the project to be completed within 24 months
and the buyers are expected to pay the monthly installments on time without considering the
status of the project. DLK also pays tax on the receipts on a monthly basis at 5%. DLK
builders anticipate a profit of Rs.40 million and the facts and figures are to be used to
evaluate the same.
SOLUTION BASED ON THE FINANCIAL EVALUATION
Based on the facts and figures available, the calculations were carried out and the following
results were obtained.
The NPV for the project was estimated to be Rs.32,052,015
The terminal value of the project was calculated at Rs. 42340299
The XNPV for the project was estimated to be Rs. 32327973
The future value of the profit was estimated to be Rs. 42013433

The XNPV value and the corresponding future value of the profit are considered to be the
best estimate as the payments and receipts are not at the same point of time. Few are at the
beginning and few are at the end of the month.
The company, DLK Builders anticipates a profit of Rs. 40,000,000. It is assumed that the
company expects the profit at the future date i.e. after 24 months on the opening day.
Therefore, the future value is considered for comparison and since this value is greater than
Rs. 40,000,000 , we recommend that the project be taken by DLK Builders provided they
complete it within the said duration.

SCHEDULE 1
ASSUMPTIONS
The following assumptions have been made to solve the case:

Both the constructed and the non-constructed area are divided equally between the
owner and DLK builders.

Sale value which is given in the case is taken to be the value after reducing 20% from
the market price.

Sale value of the non-constructed area and the constructed area are assumed to be the
same.

The receipts from the buyers are assumed to be at the beginning of each month i.e. 1st
of each month.

The cost of construction which is paid in advance is assumed to be paid at the

beginning of the month of that particular quarter. The tax payments are made at the
end of each month i.e. the last date of each month.

SCHEDULE 2

WORKINGS
Cost & Revenue

Amount (Rs.)

Total cost of construction

63750000

Total Selling

106250000

No of Quarters

Cost payment in each Quarter

7968750

No of payments

24

Dues received monthly

4427083

The calculation of XNPV is as shown below.

Date
(Imaginary)
01-01-2011
31-01-2011
01-02-2011
28-02-2011
01-03-2011
31-03-2011
01-04-2011
30-04-2011
01-05-2011
31-05-2011
01-06-2011
30-06-2011
01-07-2011
31-07-2011
01-08-2011
31-08-2011
01-09-2011
30-09-2011
01-10-2011
31-10-2011
01-11-2011
30-11-2011
01-12-2011
31-12-2011
01-01-2012
31-01-2012
01-02-2012

Inflow (sales)
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083

Outflow1
(tax)
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0

Outflow2
(Cost)
-7968750
0
0
0
0
0
-7968750
0
0
0
0
0
-7968750
0
0
0
0
0
-7968750
0
0
0
0
0
-7968750
0
0

Net outflow
-3541667
-221354
4427083
-221354
4427083
-221354
-3541667
-221354
4427083
-221354
4427083
-221354
-3541667
-221354
4427083
-221354
4427083
-221354
-3541667
-221354
4427083
-221354
4427083
-221354
-3541667
-221354
4427083

29-02-2012
01-03-2012
31-03-2012
01-04-2012
30-04-2012
01-05-2012
31-05-2012
01-06-2012
30-06-2012
01-07-2012
31-07-2012
01-08-2012
31-08-2012
01-09-2012
30-09-2012
01-10-2012
31-10-2012
01-11-2012
30-11-2012
01-12-2012
31-12-2012

0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0
4427083
0

-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354
0
-221354

0
0
0
-7968750
0
0
0
0
0
-7968750
0
0
0
0
0
-7968750
0
0
0
0
0

-221354
4427083
-221354
-3541667
-221354
4427083
-221354
4427083
-221354
-3541667
-221354
4427083
-221354
4427083
-221354
-3541667
-221354
4427083
-221354
4427083
-221354

XNPV = Rs. 32327973. The future value of the profit based on XNPV is estimated to be Rs.
42013433. The NPV was calculated as follows.
Mont
h
0
1
2
3
4
5
6
7
8
9

Cash
Inflow
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333

Tax
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2

Cost
79687
50

79687
50

79687
50

79687
50

Total
Outflow

Present
value
Factor

7968750
221354.1
667
221354.1
667
8190104.
167
221354.1
667
221354.1
667
8190104.
167
221354.1
667
221354.1
667
8190104.
167

1
0.988467
875
0.977068
739
0.965801
06
0.954663
322
0.943654
025
0.932771
688
0.922014
848
0.911382
058
0.900871
886

Present
Value
Inflow
4427083.
333
4376029.
654
4325564.
732
4275681.
778
4226374.
08
4177635.
005
4129457.
995
4081836.
569
4034764.
318
3988234.
911

Present
Value
Outflow
7968750
218801.4
827
216278.2
366
7910011.
289
211318.7
04
208881.7
503
7639497.
292
204091.8
284
201738.2
159
7378234.
586

23

4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333
4427083.
333

24

10
11
12
13
14
15
16
17
18
19
20
21
22

22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2
22135
4.2

79687
50

79687
50

79687
50

79687
50

221354.1
667
221354.1
667
8190104.
167
221354.1
667
221354.1
667
8190104.
167
221354.1
667
221354.1
667
8190104.
167
221354.1
667
221354.1
667
8190104.
167
221354.1
667
221354.1
667
221354.1
667

Aggregate Present value of

Inflow
Aggregate Present value of
Outflow
Net Present Value

0.890482
918
0.880213
758
0.870063
023
0.860029
347
0.850111
381
0.840307
79
0.830617
255
0.821038
473
0.811570
155
0.802211
026
0.792959
828
0.783815
316
0.774776
26
0.765841
443
0.757009
663

3942242.
087
3896779.
657
3851841.
507
3807421.
588
3763513.
926
3720112.
612
3677211.
807
3634805.
74
3592888.
705
3551455.
063
3510499.
239
3470015.
722
3429999.
066
3390443.
887
0

197112.1
043
194838.9
829
7125906.
787
190371.0
794
188175.6
963
6882208.
332
183860.5
904
181740.2
87
6646844.
105
177572.7
532
175524.9
619
6419529.
085
171499.9
533
169522.1
944
167567.2
432

93281892
.98
61229877
.54
3205201
5.44

The terminal value of the profit was estimated as follows.

Mont
h
0
1
2
3

Cash
Inflow
4427083.
33
4427083.
33
4427083.
33
4427083.
33

Tax

Cost
796875
0

221354.1
67
221354.1
67
221354.1
67

796875
0

Total
Outflow
7968750
221354.1
667
221354.1
667
8190104.
167

Future
value
Factor
1.320987
1
1.305753
311
1.290695
201
1.275810
742

Future
Value
Inflow
5848119.
974
5780678.
723
5714015.
212
5648120.
473

Future
Value
Outflow
10526615
.95
289033.9
361
285700.7
606
10449022
.88

23

4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33
4427083.
33

24

4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67
221354.1
67

796875
0

796875
0

796875
0

796875
0

796875
0

796875
0

221354.1
667
221354.1
667
8190104.
167
221354.1
667
221354.1
667
8190104.
167
221354.1
667
221354.1
667
8190104.
167
221354.1
667
221354.1
667
8190104.
167
221354.1
667
221354.1
667
8190104.
167
221354.1
667
221354.1
667
8190104.
167
221354.1
667
221354.1
667
221354.1
667

Aggregate Future value of

Inflow
Aggregate Future value of
Outflow
Terminal Value

1.261097
933
1.246554
794
1.232179
368
1.217969
721
1.203923
942
1.190040
14
1.176316
448
1.162751
02
1.149342
029
1.136087
673
1.122986
168
1.110035
751
1.097234
679
1.084581
232
1.072073
705
1.059710
417
1.047489
704
1.035409
921
1.023469
444
1.011666
667

5582985.
641
5518601.
951
5454960.
742
5392053.
452
5329871.
617
5268406.
87
5207650.
942
5147595.
659
5088232.
942
5029554.
802
4971553.
347
4914220.
771
4857549.
362
4801531.
494
4746159.
632
4691426.
325
4637324.
209
4583846.
006
4530984.
52
4478732.
639

12322417
7.3
80883878
.37
42340298
.93

279149.2
82
275930.0
976
10091677
.37
269602.6
726
266493.5
808
9746552.
709
260382.5
471
257379.7
83
9413230.
942
251477.7
401
248577.6
673
9091308.
426
242877.4
681
240076.5
747
8780395.
319
234571.3
162
231866.2
105
8480115.
111
226549.2
26
223936.6
319
221354.1
667