Professional Documents
Culture Documents
4
Construction finance management
Registration no.
ASSIGNMENT
NICMAR / CODE OFFICE
1. Name
2. Reg. No.
3. Course No.
NCP-29
4. Course Title
5. Assignment No.
Four
ASSIGNMENT
An offer has been given by a Charitable Trust to develop and build a
facility on a 10,000 Square Meter of plot in a prime locality of Pune
where 5000 Square Meter of area will be used by the trust housing, health
facilities for senior citizens. 5000 Square Meter will be given free to
developer as a cost of development.
Cost of land is Rs. 10,000 / Square Meter
Specifications for flooring:
10% Granite
40% Kota Stone
50% Mosaic cement tiles
R.C.C. framed structure
Aluminium sliding windows Class A.
Rest specifications as used for Class A constructions.
Page 1 of 19
Assignment no. 4
Construction finance management
Registration no.
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. Developer can invest only Rs 10 lakhs as his own funds and
can raise not more than Rs 50 lakhs as bank loan.
Page 2 of 19
Assignment no. 4
Construction finance management
Registration no.
The Financing decision involves decision on when, where and
where and how to acquire funds to meet the firms investment
needs. The central issue is to meet the firms investment need.
The central issue is to determine the proportion of equity capital
and debt capital. The time should strive for the best financing
mix or optimum capital structure for the firm.
Objectives of financial Management are:
1. PROFIT
MANAGEMENT:-
Profit
maximization
It is at best a
limited objective.
The term profit is vague.
If Profit maximization is the only goal then risk factor
is altogether ignored
Profit Maximization as an objective does not take into
account the time pattern of returns.
2. WEALTH
Page 3 of 19
Assignment no. 4
Construction finance management
Registration no.
ensure maximum return funds flowing in and out of the firm
should
be
constantly
monitored
to
assure
that
they
are
Page 4 of 19
Assignment no. 4
Construction finance management
Registration no.
Fire Fighting system.
Cafeteria
Health facilities.
Elevators
Then we have to finalize the Schedule for the Project .
PROJECT IMPLEMENTATION SCHEDULE:For preparing Project Schedule we have to prepare the Break
down Structure which should cover the total Scope of the work
then we will provide the duration for the each activity.
A REASONABLE project implementation schedule is as stated
below:
Sl. OUTPUT
No.
1
2
3
0
To be done
To be done
5
6
7
Approval of concept
Site Survey
Preliminary Drawing, Design and Cost
Estimates
Preparation of detailed drawings and
estimates
Tender Notice for Construction Contracts
Award of Contract
Commencement of Construction
Completion of Construction
365
Completion of Project
460
Page 5 of 19
25
27
50
92
Assignment no. 4
Construction finance management
Registration no.
EXECUTIVE SUMMARY:SL
Project Estimate
No.
A
Unit
Qty
Rate
Amount
Remarks
in Crs.
Civil Works
Construction of Main
Building
- Fire Fighting
- Elevator
- Electrification
- Plumbing
Interiors
- Finishing Items
Trust +
developers
share
0
1
4
1
2500000
1700000
3000000
2000000
0.25
0.68
0.3
0.2
SQM 1000
1000
0.1
- Furniture
L/s
500000
0.05
- Miscellaneous Items
L/s
5000000 0.5
External Site
Development
L/s
5000000 0.5
TOTAL
TOTAL
Total construction
cost /sq. Mt ( not taking
into a/c cost trust share
of bldg)
10.58
105800000
Page 6 of 19
Assignment no. 4
Construction finance management
Registration no.
Calculations
Total land area with developer
Total build up area on G.F
Common area on G.F including foyers ,staircases etc
Total built up area on F.F
Common area on F.F including foyers, staircases etc
Net area for sale
Price of land in Pune
Cost of total land
Undivided share of land /SQM. Of net area for sale
Add for Interest for on year on 60 lacs
Page 7 of 19
SQM
SQM
SQM
SQM
SQM
SQM
SQM
RS
RS
SQM
RS
5000
4000
750
4000
750
6500
10000
50000000
50000000
7692
900000
Assignment no. 4
Construction finance management
Registration no.
Interest per Sq. Mt for net are of sale
total cost of land + cost of const + interest /Sq. mt
Total Selling price /Sq. Mt.
Total amount from selling of commercial property
Selling price of commercial space on G.F
Total selling amount for G.F
Selling price of commercial space on F.F @ 60% of the
G.F rate
Total selling amount for F.F
Total revenue from sales
Total expenditure for Developer
Total construction cost /sq. Mt ( not taking into a/c cost
trust share of bldg)
Add for Interest for on year on 60 lacs
Total expenditure
Total Revenue from sales
Net profit
Profit % age
RS
SQM
SQM
RS
SQM
RS
138
24108
24246
78800000
24246
78800000
SQM
RS
RS
14548
47280000
126080000
RS
RS
RS
RS
RS
%
105800000
900000
106700000
126080000
19380000
18
Page 8 of 19
Assignment no. 4
Construction finance management
Registration no.
4. Cost of managing cash in off periods, and
5. Cost of borrowing money from lenders or lending
institutions.
The Planning of sources of working capital can be:
1. Net gains from operations
2. Sales to fixed assets.
3. Raising long term debt
4. Additional issue of shares.
So we have to calculate the long term interest rate, return rate
and other many useful things which will be helpful in future
control & monitoring the financial planning of working capital.
50
15%
9
Opening Quarterly
Installment
Balance No.
Ist Year
50
1
44
2
38
3
Amount
(Rs.Lakh)
Closing
Balance
(Interest)
Total
Interest Amount of
Installment
6
6
6
44
38
32
1.88
1.65
1.43
Principal
Page 9 of 19
7.88
7.65
7.43
Assignment no. 4
Construction finance management
Registration no.
32
2
26
20
14
8
2
4
2 Year
5
6
7
8
3rd year
9
6
24
6
6
6
6
26
20
14
8
2
1.2
6.15
0.98
0.75
0.53
0.3
7.2
30.15
6.98
6.75
6.53
6.3
0.08
2.63
2.08
28.63
INTRODUCTION
&
BASIC
FEATURES
OF
Page 10 of 19
Assignment no. 4
Construction finance management
Registration no.
Capital
Budgeting
refers
to
the
planned
and
pre-decided
Capital budgetary
Page 11 of 19
Assignment no. 4
Construction finance management
Registration no.
There is greater uncertainty of the outcome. Every decision
has an element of uncertainty is much more potent here,
since capital budgeting concerns that future.
There is the anticipation of large benefits spread over a
long period. Investment in fixed assets widens the base of
activity and increases the profit earning capacity of the
concern.
A capital budget thus looks ahead to a much longer range in
the future than other budgets do.
Capital budgeting is the process of analysing the financial
benefits of acquiring a capital asset with a view to determine the
viability of the project. It is a complex process, as it takes into
consideration depreciation, taxes and cash flow. This appendix
outlines the methodology of the project budgeting. The capital
budgeting process involves the following steps:
a)
b)
c)
L.2 CASH FLOW:These components in the product lifecycle costing can be divided
into an initial investment, operating cash flows and a terminal
cash flow.
Page 12 of 19
Assignment no. 4
Construction finance management
Registration no.
INITIAL INVESTMENT:- It represents the relevant cash
outflow or the cost of setting up the project.
Initial investment = Cost of capital assets + Installation costs
+ Working capital margin + Preliminary and pre-operative
expenses - Tax benefit on capital assets, where applicable.
OPERATING CASH FLOWS:- These are the relevant cash
inflows and outflows resulting from the operation of the
project during its economic life.
Operating cash inflow in a given year= Profit after tax +
Depreciation + Other non-cash charges + Interest on long-term
debt Tax rebate.
TERMINAL CASH INFLOW:- It is the relevant cash
inflow occurring at the end of the product lifecycle on
account of project liquidation.
Terminal cash inflow = Post -tax proceeds from the sale of
capital assets + Net recovery of working capital margin
+ tax adjustment, where applicable.
L.3 WEIGHTED AVERAGE COST OF CAPITAL:The weighted average cost of capital for a firm is of use in two
major areas: in consideration of the firms position and in
evaluation of proposed change necessitating a change in the
Page 13 of 19
Assignment no. 4
Construction finance management
Registration no.
firms capital. Thus a weighted average technique may be used in
quasi marginal way to evaluate a proposed investment project,
such as the construction of anew building.
L.4
APPLYING
THE
INVESTMENT
APPRAISAL
CRITERION:After the capital costs and cash flows are computed, the next step
is to analyse the financial worthiness of the investment proposal.
There are many methods for analysing investment proposals for
making
financial
criterion
can
be
decisions.
divided
The
into
two
commonly-used
broad
decision
categories,
i.e.,
Page 14 of 19
Assignment no. 4
Construction finance management
Registration no.
time) to obtain the present value (PV) of these flows. Therefore,
it is assumed that all future proceeds can be invested by the
organization at the cost of capital.
2) The initial cost of the investment (1) is subtracted from the
present value (PV) to obtain the net present value (NPV) of the
investment.
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.
4) Calculation of the Net Present Value (NPV) is accomplished
using the following formula:
t n
NPV=
...............
Investment
2
3
(1+r) (1+r) (1+r)
(1+r) h
Page 15 of 19
Assignment no. 4
Construction finance management
Registration no.
0=
+
...........
Investment
2
3
h
(1+r) (1+r) (1+r)
(1+r) 2
where all the terms have the same definitions 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.
An organization can accept a project that exceeds its cost of
capital and reject those projects with IRR below its cost of
capital. Projects with higher IRR can be preferred over lower
IRR projects.
proposal.
Projects/Plants
with
shorter
payback
Page 16 of 19
Assignment no. 4
Construction finance management
Registration no.
The payback period method does not take into consideration the
time value of money and as such, can lead to incorrect results. If
the expected future net cash flows can be discounted at the cost
of capital to the base year (present time), then the payback
period ranking conforms to the results obtained from NPV and
IRR methods.
>0
>1
Page 17 of 19
Assignment no. 4
Construction finance management
Registration no.
NPV=
+ ...........
Investment
2
3
(1+r) (1+r) (1+r)
(1+r) h
IERNAL RATE OF RETURN (IRR):The interest rate or discount rate, which gives zero IRR (r), is
calculated using the following formula:
0=
+ ...........
Investment
2
3
(1+r) (1+r)
(1+r)
(1+r) h
RECOMMENDATION:-
Page 18 of 19
Assignment no. 4
Construction finance management
Registration no.
We have done rough schematic planning of the project because
detailed planning is subjected to Preliminary designs &
can be done successfully after it. Feasibility report,
Preliminary design/drawings as well as site survey and
market survey is necessary is required for better
Financial Planning.
Page 19 of 19