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Southern Edge
<Southern Edge> Business Case
Ver. 1-3 Printed on: August 06, 2009 3:51:38 a8/p8
1
Southern Edge Table of Contents:
1. Purpose of Document…………………………..……….……….4 2. Reasons………………………………………..…………….…..4 3. Business Environment……………………….…….…………….5 4. Benefits……………………………………….….....…………...6 5. Benefits Realization..………………………..……..……………6 6. Cost and Timescale……………………........…….……………..6 7. Investment Appraisals……………………..……...………..……7 8. Risks………………................................................................…..7 9. Appendix: A …………………………………………….……….8 10. Appendix: B………………………………………….…………..9 11. Appendix: C…………………………………………….………..9 ..
2
Southern Edge Business Case History Revision History Date of this revision: 1-3 Revision date 1-1 1-2 1-3
Previous revision date 22-06-09 04-07-09 06-07-09
Summary of Changes
Changes marked
Review of project selection method Calculation review of cash flows
Approvals This document requires the following approvals. Signed approval forms are filed in the Management section of the project file. Monwar Hossain
Course Instructor
07-07-09
1-3
1. Purpose of Document: 3
Southern Edge
We have acquired feasibility studies of two lands from Mutual Property Ltd (A reputed construction company in Bangladesh). The study shows that the value of Gulsahn 5 Katha is more than the Uttara 5 Khatha. Therefore the construction cost was kept higher in Gulshan. The selling price of the each flats in Gulshan is 94, 36,000 BDT and for the Uttara is 50, 10,000 BDT. Apartments in Gulshan are usually sold at higher prices to target the upper class societies in Bangladesh. Therefore a higher quality of fixtures & fittings will be installed in Gulshan apartments. This estimate shows that total benefit of undertaking the project in Gulshan is higher than Uttara. There will be a total of 14 flats will be constructed in Gulshan and 12 flats in Uttara. The company may receive 7 flats form Gulshan or 6 flats from Uttara according to the company’s 50-50 policy. By considering all the factors we have selected Gulshan for our project. The following shows the estimated of costs and benefits of two projects.
2. Reasons In order to select the project, we have to rely on financial evaluation of the two projects. There is usually few common method of project evaluation. It is used when small commitments are being made, fairly easy justification method are used such as: •
Return on investment
•
NPV
•
IRR
•
Payback Period
•
Discounted payback
4
Southern Edge For our project evaluation we have used NPV, ROI, IRR and Pay back period. NPV is the monetary value today of future stream of positive and negative future cash flows discounted at a some annual compound interest rate. The current Bangladesh bank interest rate is 12%, so we used 12% discount factor for calculation. Using this disc factor the NPV of Gulshan is 1, 70, 91,409.67 BDT compared to Uttara which is 38, 14,745.56 BDT. The IRR of Gulshan project is 181% compared to Uttara which 76%. The ROI of Gulshan is 72.67 %compared to Uttara 25.73%. It is clear that undertaking Gulshan project will add more benefit for the company.
3. Business environments: The current business scenario in Gulshan is good for developers. There is huge demand for housing in Gulshan then Uttara. •
The land owners in Gulshan are not willing to sell the lands therefore the land price has increased.
•
Gulshan is suitable for building luxurious apartments.
•
There is less development projects are undertaken in Gulshan than Uttara.
•
Compare to Gulsahn Uttara has more development projects ongoing and there are more opportunities for development projects.
•
The supply of apartments is greater than the demand in Uttara.
•
The purchasing price of lands in Uttara is less than Gulshan.
4. Benefits: 5
Southern Edge Tangible benefits: The undertaking of Gulshan project will realize a net benefit of 2,78, 00,000 BDT. Intangible benefits: If the company undertake the Gulshan projects and builds a high quality apartment, the company’s reputation in the market will increase. This project can be used as a reference for the company taking similar projects in future.
5. Benefits Realization: The estimate shows that the return of investment in Uttara project will initiate the benefit after two years, and the estimate in Gulshan projects shows that the benefit will initiate after three years. But the ratio of the Gulshan project is much higher. The ROI of Gulshan project is 72.67% compared to Uttara 25.73%. The calculations clearly show that selecting the Gulshan project is more beneficial for the company.
6. Cost and time scale: First the company will sign the contract with Mr. Burn and hand over the signing money. The company will than submit the proposal to Rajuk. The approval from Rajuk will take longer due to strict regulations. Therefore we are expecting to complete the land survey within this period. Land Survey & Soil test
09, July
2009
Project start date
12, September 2009
Project finish date
15, September 2012
6
Southern Edge 7. Investment Appraisals: Project Uttara: NPV=
38, 14,745 BDT
ROI=
25.73%
Pay back period=
3 years
IRR=
76%
Project Gulshan: NPV=
1, 70, 91,409 BDT
ROI=
72.67%
Pay back period=
2 years
IRR=
181%
8. Risks: •
Change in government rules and regulations
•
Change in the price of apartment.
•
Change in internal management decision.
•
Price of raw materials may increase. (New budget policy)
•
Political uncertainty. ( May affect time schedule)
APPENDIX 7
Southern Edge
Estimated Cash Flow
Project: Uttara Year
Cash inflow 0 1 2 3
80,00,000 1,50,00,000 70,50,000
Cash Outflow 5,00,000 1,14,00,000 1,20,00,000
Net Cash Flow -5,00,000 -39,00,000 -900,000 61,50,000
Cash Outflow 20,00,000 1,12,00,000 1,00,50,000 1,50,00,000
Net Cash Flow -20,00,000 -12,00,000 -88,00,000 1,38,00,000 2,78,00,000
Project: Gulshan Year
Cash inflow 0 1 2 3 4
1,20,00,000 2,00,50,000 2,00,00,000 1,40,00,000
Appendix B: Risks Appendix
Attachment
Scope
Instructions
APPENDIX 1A: FINANCIAL CASE
Appendix 1a Financial Case.xls
8
Southern Edge
Appendix C: Assumptions Reference
Assumption Details
A001 A002 A003
We assumed that the flats will be sold during the project. The discount rate is 12%
9
<Southern Edge> Business Case
Ver. 1-3 Printed on: August 06, 2009 3:51:38 a8/p8
1
Southern Edge Table of Contents:
1. Purpose of Document…………………………..……….……….4 2. Reasons………………………………………..…………….…..4 3. Business Environment……………………….…….…………….5 4. Benefits……………………………………….….....…………...6 5. Benefits Realization..………………………..……..……………6 6. Cost and Timescale……………………........…….……………..6 7. Investment Appraisals……………………..……...………..……7 8. Risks………………................................................................…..7 9. Appendix: A …………………………………………….……….8 10. Appendix: B………………………………………….…………..9 11. Appendix: C…………………………………………….………..9 ..
2
Southern Edge Business Case History Revision History Date of this revision: 1-3 Revision date 1-1 1-2 1-3
Previous revision date 22-06-09 04-07-09 06-07-09
Summary of Changes
Changes marked
Review of project selection method Calculation review of cash flows
Approvals This document requires the following approvals. Signed approval forms are filed in the Management section of the project file. Monwar Hossain
Course Instructor
07-07-09
1-3
1. Purpose of Document: 3
Southern Edge
We have acquired feasibility studies of two lands from Mutual Property Ltd (A reputed construction company in Bangladesh). The study shows that the value of Gulsahn 5 Katha is more than the Uttara 5 Khatha. Therefore the construction cost was kept higher in Gulshan. The selling price of the each flats in Gulshan is 94, 36,000 BDT and for the Uttara is 50, 10,000 BDT. Apartments in Gulshan are usually sold at higher prices to target the upper class societies in Bangladesh. Therefore a higher quality of fixtures & fittings will be installed in Gulshan apartments. This estimate shows that total benefit of undertaking the project in Gulshan is higher than Uttara. There will be a total of 14 flats will be constructed in Gulshan and 12 flats in Uttara. The company may receive 7 flats form Gulshan or 6 flats from Uttara according to the company’s 50-50 policy. By considering all the factors we have selected Gulshan for our project. The following shows the estimated of costs and benefits of two projects.
2. Reasons In order to select the project, we have to rely on financial evaluation of the two projects. There is usually few common method of project evaluation. It is used when small commitments are being made, fairly easy justification method are used such as: •
Return on investment
•
NPV
•
IRR
•
Payback Period
•
Discounted payback
4
Southern Edge For our project evaluation we have used NPV, ROI, IRR and Pay back period. NPV is the monetary value today of future stream of positive and negative future cash flows discounted at a some annual compound interest rate. The current Bangladesh bank interest rate is 12%, so we used 12% discount factor for calculation. Using this disc factor the NPV of Gulshan is 1, 70, 91,409.67 BDT compared to Uttara which is 38, 14,745.56 BDT. The IRR of Gulshan project is 181% compared to Uttara which 76%. The ROI of Gulshan is 72.67 %compared to Uttara 25.73%. It is clear that undertaking Gulshan project will add more benefit for the company.
3. Business environments: The current business scenario in Gulshan is good for developers. There is huge demand for housing in Gulshan then Uttara. •
The land owners in Gulshan are not willing to sell the lands therefore the land price has increased.
•
Gulshan is suitable for building luxurious apartments.
•
There is less development projects are undertaken in Gulshan than Uttara.
•
Compare to Gulsahn Uttara has more development projects ongoing and there are more opportunities for development projects.
•
The supply of apartments is greater than the demand in Uttara.
•
The purchasing price of lands in Uttara is less than Gulshan.
4. Benefits: 5
Southern Edge Tangible benefits: The undertaking of Gulshan project will realize a net benefit of 2,78, 00,000 BDT. Intangible benefits: If the company undertake the Gulshan projects and builds a high quality apartment, the company’s reputation in the market will increase. This project can be used as a reference for the company taking similar projects in future.
5. Benefits Realization: The estimate shows that the return of investment in Uttara project will initiate the benefit after two years, and the estimate in Gulshan projects shows that the benefit will initiate after three years. But the ratio of the Gulshan project is much higher. The ROI of Gulshan project is 72.67% compared to Uttara 25.73%. The calculations clearly show that selecting the Gulshan project is more beneficial for the company.
6. Cost and time scale: First the company will sign the contract with Mr. Burn and hand over the signing money. The company will than submit the proposal to Rajuk. The approval from Rajuk will take longer due to strict regulations. Therefore we are expecting to complete the land survey within this period. Land Survey & Soil test
09, July
2009
Project start date
12, September 2009
Project finish date
15, September 2012
6
Southern Edge 7. Investment Appraisals: Project Uttara: NPV=
38, 14,745 BDT
ROI=
25.73%
Pay back period=
3 years
IRR=
76%
Project Gulshan: NPV=
1, 70, 91,409 BDT
ROI=
72.67%
Pay back period=
2 years
IRR=
181%
8. Risks: •
Change in government rules and regulations
•
Change in the price of apartment.
•
Change in internal management decision.
•
Price of raw materials may increase. (New budget policy)
•
Political uncertainty. ( May affect time schedule)
APPENDIX 7
Southern Edge
Estimated Cash Flow
Project: Uttara Year
Cash inflow 0 1 2 3
80,00,000 1,50,00,000 70,50,000
Cash Outflow 5,00,000 1,14,00,000 1,20,00,000
Net Cash Flow -5,00,000 -39,00,000 -900,000 61,50,000
Cash Outflow 20,00,000 1,12,00,000 1,00,50,000 1,50,00,000
Net Cash Flow -20,00,000 -12,00,000 -88,00,000 1,38,00,000 2,78,00,000
Project: Gulshan Year
Cash inflow 0 1 2 3 4
1,20,00,000 2,00,50,000 2,00,00,000 1,40,00,000
Appendix B: Risks Appendix
Attachment
Scope
Instructions
APPENDIX 1A: FINANCIAL CASE
Appendix 1a Financial Case.xls
8
Southern Edge
Appendix C: Assumptions Reference
Assumption Details
A001 A002 A003
We assumed that the flats will be sold during the project. The discount rate is 12%
9
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