Assignment:

An offer has been given by a Charitable Trust to develop and build 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 trust for housing, health facilities for senior citizens. 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. 10000/sq.m. Specifications for flooring: 10% Granite 40% Kota stone 50% Mosaic cement tiles R.C.C Framed structure Aluminum sliding windows Class A. Rest specifications as used for Class A. constructions. 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.

Scope:
This Project Report is about managing finance in developing and building construction facility in a land of area 10,000 sq.m . then above mentioned construction project is divided in two no. of stages: Developing facility on a 5,000 sq.m. For a charitable trust comprising of housing and health facilities. Developing 5,000 sq.m. of area as a cost of development. Succeeding report highlights the financial viability of the construction project. Extracting profit from the project through financial planning is the main feature of this project report. Profit from the project can be harvested by considering, implementing and following the points stated as under: Reducing the cost of construction. Minimizing any kind of wastage whether in term of material or in the form of people time. Planning the activities prior they actually start at the site. Scheduling tasks. Planning and controlling the project. Arranging fiancs at right time when requires.

Specifications for Class A. constructions:

As it is a Housing project the specifications in general for the residential dwellings will be as follows. Structure: R.C.C. Framed structure. As per design of Architect and Engineer. Reinforcement: The reinforcement used will be Anti Corrosive MT Steel. Masonry: All Masonry will be of Concrete Block and internal partition with first class wire cut bricks. Plastering: Internal/External plaster of walls will be executed with necessary admixtures added to the Cement Mortar in order to minimize shrinkage cracks. Internal walls will be near finished and External walls will be Sponge finished.

 Flooring: Granite on Floor in Living Room and remaining area Mosaic cement tiles and Kota stone in Bathrooms and Kitchen area. Framework: Door frames of Sal wood, Main door of Teak Wood with French polish, Internal Doors Marine Flush Door with Oil paint. Windows: Aluminum sliding Windows 3 track anodized. Painting and Polishing: Internal Walls will be painted with Oil Bound Distemper, External Walls with Apex Weather Shield paint. Kitchen: Granite platform with Stainless steel sink with drain board and Ceramic tiles on dado up to height of 0.6m above platform. Plumbing: All plumbing in the Bathrooms / Toilets will be concealed and CPVC pipes will be used. All External piping and SWR pipes used will be of Finolex. Sanitary ware: All Sanitary ware will be of Standard range of Hindware or equivalent and fittings of Jaguar standard range. Water Storage: Underground sump and overhead tank. Electricals: All wires used will be Finolex or equivalent with fixtures of Crabtree or equivalent.

Technical Studies:
The technical study is to determine the needs for material and human means necessary to achieve the objectives. These take account of the market (availability of raw material, there is demand, customer requirement), regulatory and standardsrelated product and also the financial (amount to invest and returns expected). The study focuses on two general areas: study of supply and the study of transformation. To carry out critical analysis of technical feasibility, there must be enough knowledge of technical, economic and regulatory environment.

Cost of construction:
The cost of construction includes both the initial capital cost and the subsequent operation and maintenance costs. Each of these major cost categories
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consists of a number of cost components. The capital cost for a construction project includes the expenses related to the initial establishment of the facility: Land acquisition, including assembly, holding and improvement. Planning and feasibility studies. Architectural and engineering design. Construction, including materials, equipment and labor Field supervision of construction. Construction financing. Insurance and taxes during construction. Equipment and furnishings not included in construction. Inspection and testing the operation and maintenance cost in subsequent years over the project life cycle includes the following expenses: Land rent, if applicable. Operating staff .Labor and material for maintenance and repairs. Periodic renovations.

Financial variability of Project:

Most construction projects start with a need to have a new facility long before designers start designs and drawing of the projects and certainly before field construction work can commence. Elements of this phase include: -Conceptual analysis. -Technical and feasibility studies and -Environmental impact reports.

Here the project is divided in two stages first developing & building facility for charitable trust and using 5,000 sq. m area of land free as a cost of production. As the developer has to earn profit by investing in the land of 5,000 sq. m area the best investment feasible is by building a housing society. As developer can invest only Rs 10 lakhs from his own fund and loan of maximums 50 lakhs can be taken from bank there is a financial constrain in developing the above mentioned construction project.
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So keeping in mind the financial constrain constructing, housing building in only half of the available land i.e. 2500 sq.m. of land is the must suited economical option. As the land is located at prime location of Pune, so flat of the purposed residential building can be sell at higher prices earning a good profit margin for the developer. The residential building will be three stored building to be built will be two-wheeler and four wheeler parking.

S. No. 1 2 3 4 6 7

Items 3 BHK Flats 2 BHK Flats Balcony Lobby Parking lot Guard room

Quantity 3, one on each floor 6, two on each floor 3, one on each floor 3, one on each floor At ground level 1@ ground level adjacent to entrance gate

All 3 BHK flats will be front facing and linked with the other two no. 2 BHK flat via. a lobby. Balcony will be provided at all three no.3 BHK flats will be constructed and then will be fully furnished. Fully furnished flats will then be ready for selling to the costumers with ready to move option.

As flats to be constructed are spacious, parking facilities along with security is also been provided so flat will going to attract the potential buyers easily. Posh location will also add to the amount on which flats can be sell. So developing a residential building on a free of cost land and selling the flats of the building is a sure sort assurance of profit. So this investment on this construction project is a totally win-win situation for the developer and positively promises the profit. Now a days the rates of all basic materials used in Construction in increasing at a high pace, and hence the cost of construction is always on the rise. Since all materials used for construction are in high demand and supply is correspondingly low
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there is always a point where material is priced higher by the retailer in order itself the quantities have to be worked out and materials have to be ordered early in order to avoid the loss by spending higher amounts at various stage of construction. Hence the Finance Manager needs to fore see such circumstances before the commencement of the project, in order to achieve the projected profit margin set up at the initial stage or at least try to be as close as possible.

Manpower requirement:
In general without this, project cannot be done. One should know the requirements of manpower to run the show. Based on the site requirements, project will have the following categories: Management staffs. Professional staffs. Supervising staffs. Workers (skilled, semi-skilled & un-skilled).

Equation for manpower requirements:

Equation for super structure only: Manpower Mason Carpenter Painter Blacksmith Mazdoor Single stored 1.335 A + 28 1.184 A 9 0.089 A 2.069A 4 4.769 A + 32 Double stored 1.335 A + 26 1.194 A 9 0.089 A 0.274 A 4 4.91 A + 33

where A is the Plinth area per sq.m.

Equation for sub-structure only: Materials Cement Sand Coarse aggregate Equation 0.02044 A- 0.014 0.036 A 0.071 A 0.01 Manpower Mason Carpenter Blacksmith Equations 0.023 A 0.05 A -1.6 + 0.1 A 0.0003 A2 Steel -171 + 10.46A - Mazdoor 0.041A2 Timber shuttering 0.0007 A 0.343 A

Based on the scope of work, the organization chart could be prepared. Work distribution should be done according to the organization chart. For workers, duration of working hours, cost per hour or per day, output can assessed based on the nature of work. For example, for laborers, one labor can do the excavation up to 2-3 cubic meters for 8 hours up to the lead and lift of about 0.5-1 meter. Based on the above calculations number of manpower from certainty can be assessed.

Earthwork excavation can be done manually as well as mechanically. Now a days generally this work is carried out by mechanically since the latter will take lots of time to excavate. Moreover compared to manual work is faster and cheaper also suppose we need to excavate about 5000 cubic meters of earthwork excavation.

Number of labors required to do this activity

= = 2500 nos.

According to priority of the works, within the time frame, it has to complete, suppose assume that it has to completed within 25 days.

Number of laborers to be engaged

= = 100 labors.

Keeping workers for such a long duration will lead to delay of work and loss to the contractor. But the same activity with the machine, anyone can do within a time or so. One TATA Ex-200 Excavator can load min 25-30 trips/2 hour. No. of trips per day = (8*25/2) = 100 trips. Assume quantity per trip Total quantity executed/day = 8 m3. = 8*100 = 800 m3. Break-Up of Cost of Construction is listed in the table given below: S. No. 1 2 3 4 5 6 Items R.C.C Reinforcement Masonry Plastering Flooring Framework Painting & Polishing Plumbing Sanitary Water storage Electricals Grand Total Total cost (Rs.) 18,00,000 8,00,000 6,00,000 8,00,000 8,00,000 2,50,000 2,50,000 1,75,000 2,75,000 2,75,000 7,25,000 66,50,000

Design

7 8 9 10 11

adequacy and alternatives:

The project design is the main criteria on which the whole budget as well as the end profit depends. So the design of the structure always needs to be handled at the highest profit by using as much of the permissible F.A.R possible. Also care needs to be taken during designing that the whole project should be very impressive and should be able to suit the conditions comfortably in order to find

buyers very easily in terms of looks as well as funds both and apartments so designed should suit the requirements of the buyer. The design should be in such a manner that the buyers can also relate and be able to comfortably alter a few things in such a way so as to not disturb the structure the structure or its elevation etc.

Work schedule on Quarterly basis:

Working out the Task & Time schedule of a project in preliminary stages is must for the accurate financial planning. Main motive of a work schedule is to break down the construction activities to be carried out for a project in the f o r m o f various tasks, stating the specific time to be consumed for

t h e planned tasks. For this project a total time period of 2 years has been considered and all the construction activities will be carried out in this tenure. Project start date is fixed on 10/08/2012 and commissioning of project is scheduled on 15/08/14. So Project activities is divided in to four quarterly phases namely Phase -I, Phase-II, Phase-III & Phase-IV, each phase covers a period of 8 to 4 months depending on the activities carried in the respective phase. Break-Up of Work Schedule is listed in the table given below: Phase-I S. No. 1 2 3 4 Activities R.C.C Foundation Reinforcement work Masonry work Plastering Total time elapsed Start time 10/08/2012 06/11/2012 16/01/2013 24/03/2013 Finish time 05/11/2012 15/01/2013 23/02/2013 15/04/2013 8 months

Phase-II S. No. 1 2 Flooring Frame work Activities Start time 10/04/2013 27/07/2013 Finish time 26/07/2013 10/10/2013

Painting & Polishing Total time elapsed

11/10/2013

10/12/2013 8 months

Phase-III S. No. 1 2 Plumbing Sanitary ware Total time elapsed Activities Start time 11/12/13 16/02/14 Finish time 15/02/14 20/04/14 4 months

Phase-IV S. No. 1 2 Activities Water storage Electricals Total time elapsed Start time 21/04/14 21/06/14 Finish time 20/06/14 15/08/14 4 months

Operating expenses:
The actual costs associated with operating a property including maintenance, repairs, management, utilities, taxes and insurance. A landlords definition of operating expenses is likely to be quite broad, covering most aspects of operating the building.The following are some of the strategies that can make buildings healthy, comfortable and productive and reducing the operating expenses. Day lighting. Properly commissioned and maintained HVAC systems. Narrow floor plans to optimize natural daylight. High benefit lighting upgrades. Under floor air distribution and displacement ventilation.
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 Occupant control of heat, light and air. Operable windows and mixed mode HVAC.

Financial and economic Evaluation Capital:

Business requires capital. The term capital is used differently in different contexts. It is used in the sense of means of production, usually the assets held by the firm. It is also used in the sense of finance obtained by a firm. It is also used in the sense of finance obtained by a firm. In accounting, capital is used in the second sense. A part of the finance obtained by a firm is in the form of interest free credit, such as credit allowed by suppliers of materials or services and advance payment received by customers.

Revenue:
Revenue is the income that arises from exchange transactions with customers in the course of ordinary activities of an enterprise. An entitys revenue earning activities include selling of goods, rendering of services, and allowing others to use entitys resources yielding interest, royalties and dividends. R e v e n u e i n c r e a s e s t h e e q u i t y o f t h e e n t e r p r i s e .

Finance Resource mobilization:

Resource mobilization can facilitate the flow of resources from various sources and catalyze the flow of additional resources from official and private institutions. For projects and programs that are too large to be handled by one funding agency, mobilizing financing from various funding sources can meet these large resources requirements. Resources can be in any form such as finances, technology, man power both skilled and labor, information, etc.

Financial accounting:
Financial accounting consists of recording, classifying and analyzing the business transactions so as to facilitate the preparation of profit and loss account for period and also the position statement (i.e. Balance sheet) on a particular day. Thus, the emphasis of financial accounting is on the ascertainment of profit and loss of the
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concern and not on the more important aspects of the business i.e. planning, control, and decision-making.

Cost accounting:
Cost accounting analysis the transactions in an objective manner for the purposes of planning, control and decision making. Cost accountancy is the application of counting and cost accounting principle methods and techniques to the science, arts and practice of cost control and the ascertainment of profitability. It includes the presentation of information derived there from the purpose of managerial decision making. Cost accounting is also defined as the process of accounting for cost from the point at which expenditure is incurred on committed to the establishment of its ultimate relationship which cost centers and cost units.

Managerial accounting:
Management accounting is another aspect of accounting which has developed in recent years and is being employed in many concerns as an informative mechanism to aid the management in decision making by providing various information about what is going on in the business and what changes, if any, is given effect to.

Capital budgeting:
Investment appraisal is the planning process to determine whether a firms long term long terms investments such as new machinery, replacement machinery, new plants, new products and research developments projects such as accounting rate of return, profitability index, internal rate of return, modified internal rate of return, equivalent annuity etc. These methods use the incremental cash flows from each potential investment, or project techniques based on accounting earning and accounting rules are some used through economists consider this to be improper such as accounting rate of return, and return on investment.

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Cash flow forecasting:

The modeling of a company or assets future financial liquidity over a specific time frame. Cash usually refers to the companys total b a n k b a l a n c e s , b u t o f t e n w h a t i s f o r e c a s t i s treasury position w h i c h i s c a s h p l u s s h o r t t e r m investments minus short-term debt. Cash flow is the change in cash or treasury position from o n e p e r i o d t o t h e n e x t ; i n t h e c o n t e x t o f t h e e n t r e p r e n e u r o r manager, forecasting what cash will come into the business or busine ss unit in order to ensure that outgoing can be managed to as to avoid them exceeding cash flow coming in. If there is one thing entrepreneurs learn fast, it is to become very good at cash flow forecasting.

Proposed Project Financing Capital structure:

It refers to the way a corporation finances its assets through some combination of equity, debt or hybrid securities. A firms capital structure is then the composition or structure of its liabilities. The proposed capital structure for the project is below: The debt raised by the promoter is Rs. 40 lakhs. The total debt would not be taken all at once rather it would be disbursed in four equal quarterly installments. This debt will carry fixed interest expense as follows:

Profit measures:
A profit measure is an indicator of the desirability of the project from the stand point of a decision maker. A profit measure may or may not be used as the basis for project selection. Since various project measures are used by the decision makers for different purposes, the advantages and restrictions for using these profit measures should be fully understood.
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There are several profit measures that are commonly used by decision makers in both private and public construction project corporations. Each of these measures is intended to be an indicator of profit or net benefit for a project under consideration. Some of these measures indicate the size of the profit at a specific point in time; others gave the rate of return period when the capital is in use Gross profit Net profit Profit after tax The basic profit (or less) = sales revenue - production and sales expenses. = gross profit depreciation & interest on loans. = net profit tax payable at that profit. = Revenues in terms of sale proceeds and rental income - Expenses in terms of hard land and construction costs and other soft costs such as professional fees

and interest payments. Some of the most frequently used profit measures are as follows: 1. Net return value and net present value: When an organization makes an investment, the decision maker looks forward to the gain over a planning horizon against what might b e g a i n e d i f the money were invested elsewhere. A minimum a t t r a c t i v e rate of return (MARR) is adopted to reflect this opportunity cost of capital. The MARR is used for compounding the estimated cash flows to the end of the planning horizon, or for discoun ting the cash flow to the present. The profitability is measured by the net future value (NFV) which is the net return at the end of the planning horizon above what might have been g a i n e d b y i n v e s t i n g e l s e w h e r e a t t h e MARR. The net present v a l u e ( N P V ) o f t h e e s t i m a t e d c a s h f l o w s o v e r t h e p l a n n i n g horizon is the discounted value of t h e N F V t o t h e p r e s e n t . A ppositive NPV for a project indicates the present value of the net gain corresponding to the project cash flows.
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2. Internal rate of return: The internal rate of return (IRR) is defined as the discount rate which sets the net present value of a series of cash flows over the planning horizon equal to zero. Its used as a profit measure since it has been identified as the marginal efficiency of capital or the rate of return of cost. The IRR gives the return of an investment when the capital is in fuse as if the investment consists of a single outlay and returns at the immediate points over the planning horizon. For cash flows with two or more sign reversals of the cash flow in any period, there may exist simple values of IRR; in such cases, the multiple values are subjected to various interpretations. Average rate of return: Rate of return is the ratio of investment. Basically there are two principal variations in approach: Original investment approach Average investment approach. Average annual earnings after Rate of Return = average depreciation and taxes average investment 100 Discounted cash flows techniques Net present value method (NPV) The net present value of the project is equal to the some of the present value of the all cash flows associated with the project. NPV = (CF1 / (1+K) + (CF2 /(1+K)*2) + (CFN /(1+K)*N-L) -CFN = cash after occurring at the end of year N -L -K -N = initial investment = cost capital = life of the project

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Internal Rate of return (IIR) IRR is the value of K in the equation. L = (CF1 / (1+K)) + (CF2 /(1+K)*2) +(FM /(1+K)*m)

3. Adjusted Internal Rate of Return: If the financing and reinvestments policies are incorporated into the evaluation of project, an adjusted internal rate of return (AIRR) which reflects such policies may be a useful indicator of profitability under restricted circumstances. Because of the complexity of financing and reinvestment policies used by an organization over the life of a project, the AIRR seldom can reflect the reality of actual cash flows. However, it offers an approximate value of the yield on an investment for which two or more sign reversals in the cash flows would result in multiple values of IRR.

4. Return on investment: When an accountant reports income in each year of a multi-year project, the stream of cash f l o w s m u s t b e b r o k e n u p i n t o a n n u a l r a t e s o f r e t u r n f o r t h o s e years. The return on investment (ROI) as used by accountants usually means the accountant's rate of return for each year of the project duration based on the ratio of the income (revenue less depreciation) for each year.

5. Payback period: The payback period refers to the time within which the length of time within which the benefits received from an investment can repay the costs incurred during the time in question while ignoring the remaining time periods in the planning horizon the remaining time periods in the planning capital

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recovery period does not reflect the magnitude or direction of the cash flows in the remaining periods.

However, if a project is found to be profitable by other measures, the payback period can be used as a secondary measure of the financing requirements for a project. Thus, earnings = Sale of the product cost of production income tax payable. In case of annual earnings are fairly uniform, the payback is determined as: Payback period = cost of asset. i.e. investment = No. of years earnings or net cash flow per year.

Proposed capital structure and finance plan:

The other hand permanent component of current assets would be financed with long-term funds. It is indicated that a profitable firm may not be in a position to meet its costs obligations if funds borrowed on a short-term basis have become tied up in permanent assets. Larger the percentage of funds obtained, from long-term sources, the more conservative the firms working capital policy. There are three primary factors determining the use of long-term versus short-term funds for financing current assets flexibility, cost and risk.
These costs may consist of: Cost of having trade credit. Cost of extending liberal credit terms to debtors. Cost of letting or allowing cash to remain idle. Cost of managing cash in off periods, and Cost of borrowing money from lenders or lending institutions. The planning of sources of working capital can be:

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Net profits constitute a potential permanent source of working capital funds from current operations since funds accruing to the depreciation are usually expected to be reinvested at some later date in replacements and additions of fixed assets. All other sources of funds are irregular and temporary Capital borrowing is a source of working capital that can be planned with certainty but these funds eventually have to be returned to the creditors and the only source of funds for replacement is working capital.

Loan borrowings planned:

Short-term capital provision and management is vital to the firm. It is this type of capital, which is required for the day-to-day activities. The sources of short-term capital are both internal and external, the main internal sources being accrued expenses and tax provisions and the main external sources being trade creditors, bank overdrafts, and short-term loans. It is short term finance, which provides the circulating capitals for the firm and assists with overcoming potential cash flow problems due to market fluctuation notable the most important source for construction firms is that of bank overdraft.

Project Statement:
To develop a commercial site 10,000 m2 and in that 5,000 m2 developed area will be used by the owner and the balance 5,000 m2 area will be utilized by the developer to get investment and a profit on his investment. The cost of land is Rs. 10,000/ m2 Developer is going to get 5,000 m2 at the rate of 10,000/m2, which will give him an asset of 5,000 * 10,000 = 500,00,000 (Rs. 5 crore). Developer will get the area to develop for the trust is 5,000 m2 at the rate of 10000/ m2. Within this area total usable area will be 85%.
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Thus developer the total area is 5,000*0.85 = 4250 m2. Generally construction rate is varying with area to area. We can assume the construction cost at this prime locality is 800-900 Rs./ft2 i.e. 7000 8000/ m2. Thus the total cost of construction will be 4250 * 7500 = 318,75,000. Developer is going to generate the amount of 10,00,000 Rs. on his own and 50,00,000 Rs. from the bank. This total 60,00,000 Rs. is not at all sufficient to develop the proposed development therefore he is going to use land which he got a development cost to generate the amount. Thus developer can generate the amount by giving this land for private authorities. Developer is going to get rent of 500 * 5000 * 12 = Rs. 300,00,000. Thus the developer is going to generate the total amount of Rs. 360,00,000.

Say, the amount generated from bank is having the rate of interest 14 %. i.e. at the end of the year we have to return total amount of 50,00,000 + (50,00,000 * 0.14) = Rs. 57,00,000. Thus the total investment is Rs. 325,75,000 within the year.

Net Present Value method (NPV): NPV = (CF1/(1+K)) + (CF2/(1+K) * 2) + (CFN/(1+K) * N L)

Life of the project is one year. So N = 1. NPV = 500,00,000 / (1 + 0.14) -325,75,000 = Rs. 112,84,649. Thus the investment is most beneficial to the developer.

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