Southern Edge

<Southern Edge>

Business Case

Ver. 1-3

Printed on: August 06, 2009 3:51:38 a8/p8

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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

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Business Case History

Revision History
Date of this revision: 1-3

Revision Previous Summary of Changes Changes

date revision marked
date
1-1 22-06-09
1-2 04-07-09 Review of project selection method
1-3 06-07-09 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:

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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

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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:

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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

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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

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Estimated Cash Flow

Project: Uttara

Year Cash inflow Cash Outflow Net Cash Flow

0 5,00,000 -5,00,000
1 80,00,000 1,14,00,000 -39,00,000
2 1,50,00,000 1,20,00,000 -900,000
3 70,50,000 61,50,000

Project: Gulshan

Year Cash inflow Cash Outflow Net Cash Flow

0 20,00,000 -20,00,000
1 1,20,00,000 1,12,00,000 -12,00,000
2 2,00,50,000 1,00,50,000 -88,00,000
3 2,00,00,000 1,50,00,000 1,38,00,000
4 1,40,00,000 2,78,00,000

Appendix B: Risks
Appendix Attachment Scope Instructions
APPENDIX 1A:
FINANCIAL CASE
Appendix 1a -
Financial Case.xls

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Appendix C: Assumptions
Reference Assumption Details
A001 We assumed that the flats will be sold during the project.
A002 The discount rate is 12%
A003