ASSIGNMENT ON CONSTRUCTION FINANCE MANAGEMENT PGPM 12

SUBMITTED BY

K.VINOTH KUMAR, PG PPM, REG NO: 211-05-31-9361-2133

NICMAR/CODE OFFFICE 1. Course No 2. Course title 3. Assignment No 4. Date of dispatch 5. Last date of receipt of Assignment at CODE office : : : : : PGPM 12 Construction Finance Management 02 15-03-2012

Assignment An offer has been given by a charitable trust to develop and build a facility on a 10,000 sq.m. of plot in a prime locality of Pune where 5000 sq.m. of area will be used by the trust for housing, health facilities for senior citizens. 5000 sq.m.will be given free to developer as a cost of development. Cost of land is Rs.10, 000/ sq.m. Specification for flooring: 10% Granite 40% Kota stone 50% Mosaic cement tiles R.C.C Framed structure Aluminium sliding windows Class A. Rest specification as used for Class A. constructions. Discuss the final 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 rise not more than Rs. 50 lakhs as bank loan.

SOLUTION: 1. PROJECT SCOPE / SPECIFICATIONS The Scope of work consists of constructing a housing and health facility center for senior citizen on a 5000 sqm plot in a prime locality in Pune. The land belongs to a charitable trust. To utilize the space provided by charitable trust for a social & noble cause. To provide a better place for senior citizens. To make the society aware about the responsility towards our elders. Specification for flooring 10% Granite 40% Kota Stone. 50% Mosaic Tiles RCC Framed Structure Aluminum sliding windows- Class A

It will be based on latest technology of construction. The building will be of framed structure, Structural glazing, external cladding using composite aluminum sections will also be applied. Beside these finishes for internal as well as external will be of the best type prevailing in the industry referring to Class- A specifications. The work will be completed in 12 months (365 days) as per Project implementation Schedule.

Facilities to be provided: Parking facility Security & Announcement Booth Landscaping Lighting Arrangement Public Toilets Fire Fighting System Cafeteria Health facilities Elevators.

2. TECHNICAL STUDIES

a) TECHNOLOGY

The technology used will the general building practice adopted by all the contractors. Equipments like concrete mixers, mobile crane, vibrators needles; concrete pumps etc will be deployed. Stuttering will be made up of wood & steel as per the requirement. All scaffoldings will be of steel as per IS code. Safety will be given utmost importance. b & c) COST OF CONSTRUCTION & MANPOWER COSTS Land Area allotted Coverage Index Total built up area: 40% of 5000 = 5000 sqm. = 40% = 2000 sqm.

On studying various such projects given below is the percentage breakup for different items along with the rate.

Item Structural Work Masonry Work Steel Work Aluminum Work Wood Works Plastering Work Painting works Total

Percentage 65 % 11 % 3% 1% 1% 4% 4% 89 %

Rate in Rs./sqm. 3,700 705 265 100 100 300 330 5,500

In the above table the total percentage comes to 89%. The rest of 11% counts for the flooring. In our project we have 3 different types of flooring. a) Granite 10% b) Kota 40% c) Mosaic 50%

Given below is the rate and percentage breakup for the flooring item.

Item

Percentage 11%

of Rate Rs./sqm. 2,500 1,000 250

in Area of flooring in sqm.

Granite Kota Mosaic Total

1.1% 4.4% 5.5% 11%

200 800 1000 2000

So the cost of construction (rates given below are inclusive of material and equipment) will be calculated as given below.

Item

Area in sqm. In Rate in Rs./ sqm. Amount in Rs. respect to built up area.

Structural works Masonry Works Steel Works

2000 2000 2000

3,700 705 265 100 100

74,00,000 14,10,000 5,30,000 2,00,000 2,00,000

Aluminum Works 2000 Wood Works 2000

Plastering Works Painting Works Mosaic Flooring Kota flooring Granite flooring

2000 2000 1000 800 200

300 330 250 1,000 2,500

6,00,000 6,60,000 2,50,000 8,00,000 5,00,000 1,25,50,000

Total cost of construction

d.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 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.

3. FINANCIAL AND ECONOMICS EVALUATION A project involves the current outlay (or current and future outlays) of funds with the expectation of getting future benefits. While capital expenditure decisions are extremely important, they also pose difficulties. Capital expenditure decisions involve substantial investment. Due to the inherent uncertainty, future predictions become difficult. It is difficult to identify and measure the costs and benefits of a capital expenditure since they are spread out over a long period of time, 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 often cannot be reversed without incurring a substantial loss. Capital loss increases with advances in technology. Capital investment decisions have an enormous bearing on the future of an organization. Capital budgetary proposals, therefore, demand a conscious approach in the early stages of the project formulation. 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. a) Total investment costs b) Project Financing Proposed Proposed capital structure and loan requirements Invest by the developer : Bank loan : 10 lakhs. 50 Lakhs

 Interest Calculations 1st Quarter Balance at beginning of 50 quarter Interest @ 14% Repayment Balance at end of quarter 1.75 12.5 37.5 1.75 12.5 25 1.75 12.5 12.5 1.75 12.5 0 2nd Quarter 37.5 3rd Quarter 25 4th Quarter 12.5

c) Operating Cost with quarterly breakup. The following operating is calculated using the quarterly schedule and cost of construction. For 1st quarter Structural Works Masonry Works Total 37,00,000 4,02,857.14 41,02,857.14

For 2nd quarter Structural Works Masonry Works Steel works Plastering Works Total 37,00,000 6,04,285.71 5,30,000 1,50,000 49,84,285.71

For 3rd quarter Masonry Works Aluminum works Wood Works Plastering Works Painting Works Total 4,02,857.14 1,00,000 1,50,000 4,50,000 3,30,000 14,32,857.14

4th quarter Aluminum Works Wood Works Painting Works Flooring Works Total 1,00,000 50,000 3,30,000 15,50,000 20,30,000

1st quarter 2nd quarter 3rd quarter 4th quarter Total

41,02,857.14 49,84,285.71 14,32,857.14 20,30,000.00 1,25,50,000.00

d) Cash Flows Given below is the cash flow statement on quarterly basis 0 Initial investment(A) Operational flows(B) Add. Revenue Operating Cost Interest Profit before tax Tax @ 30 % Profit After tax Terminal Flows(C) Repayment Total Flows(A+B+C) -10 -12.5 45.05 0.85 -12.5 38.89 0.72 -12.5 63.74 0.61 -12.5 59.56 0.52 125.00 41.03 1.75 82.22 24.67 57.55 125.00 49.84 1.75 73.41 22.02 51.39 125.00 14.33 1.75 108.92 32.68 76.24 125.00 20.30 1.75 102.95 30.89 72.06 -10 1st 2nd 3rd 4th

Pv factor at 18% discounted 1 rate -10 Total Pvs NPV 126.14 116.14

38.29

28.00

38.88

30.97

Payback period: Average return per quarter = 51.81 Lakhs Total investment + Bank Loan = 60 Lakhs Payback period = 60/51.81 = 1.16 = 3 and 1/2 months

Payback Period. It is the time (in years) that a project/plant takes to pay back the initial cost of the investment from the expected future net cash flows resulting from the investment.

4. CONCLUSIONS/ RECOMMENDATIONS According to the NPV method the project is financially feasible as the NPV is positive. Also according to the payback measure the initial investment and the bank loan amount is recovered in 3 and months. So the project is financially feasible. 5. BIBLIOGRAPHY / REFERENCES

Construction Finance Management NICMAR Pune.