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 : PGPM 12

2. Course title : Construction Finance Management

3. Assignment No : 02

4. Date of dispatch : 15-03-2012

5. Last date of receipt of

Assignment at CODE office :

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 = 5000 sqm.

Coverage Index = 40%

Total built up area: 40% of 5000 = 2000 sqm.

On studying various such projects given below is the percentage breakup

for different items along with the rate.

Item Percentage Rate in Rs./sqm.

Structural Work 65 % 3,700

Masonry Work 11 % 705

Steel Work 3 % 265

Aluminum Work 1 % 100

Wood Works 1 % 100

Plastering Work 4 % 300

Painting works 4 % 330

Total 89 % 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 of

11%

Rate in

Rs./sqm.

Area of flooring in sqm.

Granite 1.1% 2,500 200

Kota 4.4% 1,000 800

Mosaic 5.5% 250 1000

Total 11% 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

respect to built

up area.

Rate in Rs./ sqm. Amount in Rs.

Structural works 2000 3,700 74,00,000

Masonry Works 2000 705 14,10,000

Steel Works 2000 265 5,30,000

Aluminum Works 2000 100 2,00,000

Wood Works 2000 100 2,00,000

Plastering Works 2000 300 6,00,000

Painting Works 2000 330 6,60,000

Mosaic Flooring 1000 250 2,50,000

Kota flooring 800 1,000 8,00,000

Granite flooring 200 2,500 5,00,000

Total cost of construction 1,25,50,000

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 : 10 lakhs.

Bank loan : 50 Lakhs

Interest Calculations

1st

Quarter

2nd

Quarter

3rd

Quarter

4th

Quarter

Balance at beginning of

quarter

50 37.5 25 12.5

Interest @ 14% 1.75 1.75 1.75 1.75

Repayment 12.5 12.5 12.5 12.5

Balance at end of quarter 37.5 25 12.5 0

c) Operating Cost with quarterly breakup.

The following operating is calculated using the quarterly schedule and cost of

construction.

For 1st quarter

Structural Works 37,00,000

Masonry Works 4,02,857.14

Total 41,02,857.14

For 2nd quarter

Structural Works 37,00,000

Masonry Works 6,04,285.71

Steel works 5,30,000

Plastering Works 1,50,000

Total 49,84,285.71

For 3rd quarter

Masonry Works 4,02,857.14

Aluminum works 1,00,000

Wood Works 1,50,000

Plastering Works 4,50,000

Painting Works 3,30,000

Total 14,32,857.14

4th quarter

Aluminum Works 1,00,000

Wood Works 50,000

Painting Works 3,30,000

Flooring Works 15,50,000

Total 20,30,000

1st quarter 41,02,857.14

2nd quarter 49,84,285.71

3rd quarter 14,32,857.14

4th quarter 20,30,000.00

Total 1,25,50,000.00

d) Cash Flows

Given below is the cash flow statement on quarterly basis

0 1st 2nd 3rd 4th

Initial investment(A) -10

Operational flows(B)

Add. Revenue 125.00 125.00 125.00 125.00

Operating Cost 41.03 49.84 14.33 20.30

Interest 1.75 1.75 1.75 1.75

Profit before tax 82.22 73.41 108.92 102.95

Tax @ 30 % 24.67 22.02 32.68 30.89

Profit After tax 57.55 51.39 76.24 72.06

Terminal Flows(C)

Repayment -12.5 -12.5 -12.5 -12.5

Total Flows(A+B+C) -10 45.05 38.89 63.74 59.56

Pv factor at 18% discounted

rate

1 0.85 0.72 0.61 0.52

-10 38.29 28.00 38.88 30.97

Total Pv’s 126.14

NPV 116.14

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

Pay–back 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 ½ months.

So the project is financially feasible.

5. BIBLIOGRAPHY / REFERENCES

Construction Finance Management NICMAR Pune.