Case study Project Finance

Project Management Specialty

ALTERNATIVE 1: DO NOTHING Project Financing
Situation 0 Case Study 1 - Module 5 - Project Finance By: Garinardy Rodríguez
Rooms 200
Price 70 €
Occupation 50%
Situation 1
Rooms 200
Price 70 €
Occupation 50.00%
Annual decline -30%
Update rate 8%

FC / t 0 1 2 3 4 5 6 7 8 9 10
Occupation 50.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%
Revenues 2,520,000 € 1,764,000 € 1,234,800 € 864,360 € 605,052 € 423,536 € 296,475 € 207,533 € 145,273 € 101,691 € 71,184 €
Fixed costs 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 €
Variable costs 226,800 € 158,760 € 111,132 € 77,792 € 54,455 € 38,118 € 26,683 € 18,678 € 13,075 € 9,152 € 6,407 €
Reform - 0 0 0 0 0 0 0 0 0 0
FC FINAL (i) 2,420,000 € 1,664,000 € 1,134,800 € 764,360 € 505,052 € 323,536 € 196,475 € 107,533 € 45,273 € 1,691 € -28,816 €
VAN 6,040,703 €]

ALTERNATIVE A: REFORM WITH

FINANCING
Situation 0
Rooms 200
Price 70 €
Occupation 50%
Situation 1
Rooms 200
Price 70 €
Occupation 60.00%
Annual increase 60%
Update rate 8%

FC / t 0 1 2 3 4 5 6 7 8 9 10
Occupation 50.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00%
Revenues 2,520,000 € 1,344,000 € 2,150,400 € 3,440,640 € 5,505,024 € 8,808,038 € ########### ########### ########### ########### ###########
Fixed costs 100,000 € 33,333 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 €
Variable costs 226,800 € 120,960 € 193,536 € 309,658 € 495,452 € 792,723 € 1,268,358 € 2,029,372 € 3,246,995 € 5,195,192 € 8,312,308 €
Reform (8,000,000.00) 4,000,000.00 6,000,000.00 - - - - - - - -
FC FINAL (i) 10,193,200 € -2,810,293 € -4,143,136 € 3,030,982 € 4,909,572 € 7,915,315 € ########### ########### ########### ########### ###########
VAN 115,763,479 €]

ALTERNATIVE B: PROJECT FINANCE

Situation 0
Rooms 200
Price 70 €
Occupation 50%
Situation 1
Rooms 200
Price 70 €
Occupation 50.00%
Annual increase 60%
Update rate 8%

FC / t 0 1 2 3 4 5 6 7 8 9 10
Occupation 50.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00%
Revenues 2,520,000 € 1,344,000 € 2,150,400 € 3,440,640 € 5,505,024 € 8,808,038 € ########### ########### ########### ########### ###########
Fixed costs 100,000 € 33,333 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 € 100,000 €
Variable costs 226,800 € 120,960 € 193,536 € 309,658 € 495,452 € 792,723 € 1,268,358 € 2,029,372 € 3,246,99 5,195,19 8,312,308 €
Project Finance (8,000,000.00) - - 3,268,608.00 5,229,772.80 8,367,636.48 - - - - -
FC FINAL (i) 10,193,200 € 1,189,707 € 1,856,864 € -237,626 € -320,201 € -452,322 € ########### ########### ########### ########### ###########
VAN 214,316,140 €]

According to the NPV criteria, financing through PROJECT FINANCE would be more profitable for the hotel remodeling project. Also cash flows with negative amounts are lower in relation to
the FINANCIAL REFORM.
I would only choose a different decision when the project is not able to generate positive cash flows and has to be secured using the strength and solvency of the sponsors.