Project Investment Analysis: John Wiley Pty Ltd Development Project
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AI Summary
This project investment analysis evaluates two proposals for a real estate development, encompassing detailed financial modeling and risk assessment. The analysis includes calculating total development costs, preparing cash flow schedules, estimating net income, and determining key financial metrics such as Net Present Value (NPV), Internal Rate of Return (IRR), and Average Rate of Return (ARR). The report also explores the impact of varying debt-to-equity ratios and identifies critical risks influencing the development. A comparative analysis of the two proposals is presented, along with recommendations, assumptions, and an executive summary to guide decision-making. The analysis covers various aspects of the projects including land acquisition, construction costs, and ongoing expenses, to determine the most financially viable option for John Wiley Pty Ltd.
PROJECT INVESTMENT
ANALYSIS
ANALYSIS
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TABLE OF CONTENTS
PART A......................................................................................................................................1
Calculate total cost of the development..................................................................................1
Preparing development plan...................................................................................................1
Prepare a cash flow schedule..................................................................................................2
Estimate the net income on completion of project.................................................................3
Calculate the following:.........................................................................................................4
Total development cost...........................................................................................................4
Project finance cost.................................................................................................................5
Cost escalation........................................................................................................................5
Calculate the initial project development yield on completion of the project........................6
PART B......................................................................................................................................6
Calculate the purchase price of purchasing facility................................................................6
Calculate developer’s profit or loss........................................................................................7
Generate an Annual net cash flow for John Wiley Pty Ltd for 10 years................................8
Determine NPV using 9% discounting rate with base year 2020..........................................8
Calculate Net present value of sale........................................................................................9
Calculate Profit and IRR........................................................................................................9
PART C....................................................................................................................................10
Compare option 1 and 2 and suggest the best suitable option..............................................10
PART D....................................................................................................................................11
Analyze the impact of changing the debt to equity ratio to 80:20 and 50:50.......................11
PART E....................................................................................................................................12
List all risks that influences the development proposal........................................................12
Identify three key risk areas.................................................................................................12
Carry out sensitivity and risk analysis on the above mention three areas............................13
PART F....................................................................................................................................13
List all assumptions at the front of report.............................................................................13
PART G....................................................................................................................................14
Executive summary..............................................................................................................14
Recommendations................................................................................................................14
Methodology.........................................................................................................................15
PART A......................................................................................................................................1
Calculate total cost of the development..................................................................................1
Preparing development plan...................................................................................................1
Prepare a cash flow schedule..................................................................................................2
Estimate the net income on completion of project.................................................................3
Calculate the following:.........................................................................................................4
Total development cost...........................................................................................................4
Project finance cost.................................................................................................................5
Cost escalation........................................................................................................................5
Calculate the initial project development yield on completion of the project........................6
PART B......................................................................................................................................6
Calculate the purchase price of purchasing facility................................................................6
Calculate developer’s profit or loss........................................................................................7
Generate an Annual net cash flow for John Wiley Pty Ltd for 10 years................................8
Determine NPV using 9% discounting rate with base year 2020..........................................8
Calculate Net present value of sale........................................................................................9
Calculate Profit and IRR........................................................................................................9
PART C....................................................................................................................................10
Compare option 1 and 2 and suggest the best suitable option..............................................10
PART D....................................................................................................................................11
Analyze the impact of changing the debt to equity ratio to 80:20 and 50:50.......................11
PART E....................................................................................................................................12
List all risks that influences the development proposal........................................................12
Identify three key risk areas.................................................................................................12
Carry out sensitivity and risk analysis on the above mention three areas............................13
PART F....................................................................................................................................13
List all assumptions at the front of report.............................................................................13
PART G....................................................................................................................................14
Executive summary..............................................................................................................14
Recommendations................................................................................................................14
Methodology.........................................................................................................................15
Letter to managing director..................................................................................................15
REFERENCES.........................................................................................................................17
REFERENCES.........................................................................................................................17
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PART A
Calculate total cost of the development
Proposal 1
Particulars Amount(In million)
Land acquisition costs 70
Demolition Estimate 0.8
Planning and Design cost 3.5
Landscaping and external work 0.5
Cost of design and construction 350
Cost of development 0.5
Total 425.3
Proposal 2
Particulars Amount(In million)
Land acquisition costs 70
Demolition Estimate 0.8
Planning and Design cost 4.5
Landscaping and external work 0.5
Cost of design and construction 375
Cost of development 0.5
Total 451.3
Preparing development plan
Activities Time duration
Market research 1 month
Data collection 2 month
Planning and design 6 months
Demolition 3 months
Construction 20 months
Landscaping and external work 6 month
1
Calculate total cost of the development
Proposal 1
Particulars Amount(In million)
Land acquisition costs 70
Demolition Estimate 0.8
Planning and Design cost 3.5
Landscaping and external work 0.5
Cost of design and construction 350
Cost of development 0.5
Total 425.3
Proposal 2
Particulars Amount(In million)
Land acquisition costs 70
Demolition Estimate 0.8
Planning and Design cost 4.5
Landscaping and external work 0.5
Cost of design and construction 375
Cost of development 0.5
Total 451.3
Preparing development plan
Activities Time duration
Market research 1 month
Data collection 2 month
Planning and design 6 months
Demolition 3 months
Construction 20 months
Landscaping and external work 6 month
1
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Market research
Data collection
Planning and design
Demolition
Construction
Landscaping and external work
0
200
400
600
Development plan
Time duration
Prepare a cash flow schedule
Proposal 2
Particulars Amount
Cash inflow
Sales
Office lettable 27.5
Retail lettable 2.5
Flat 4.56
Total sales 34.56
Amount recoverable
Office lettable 0.25
Retail lettable 0.025
Total recoverable amount 0.275
Total cash inflow 34.84
Cash outflow
Agent commission 0.50985
Overhead costs 10.659
Contingency costs 17.765
Office lettable 8
Retail lettable 0.8
Total outgoings 8.8
Total cash outflow 37.73
Net cash flow -2.90
Proposal 1
Particulars Amount
Cash inflow
Sales
2
Data collection
Planning and design
Demolition
Construction
Landscaping and external work
0
200
400
600
Development plan
Time duration
Prepare a cash flow schedule
Proposal 2
Particulars Amount
Cash inflow
Sales
Office lettable 27.5
Retail lettable 2.5
Flat 4.56
Total sales 34.56
Amount recoverable
Office lettable 0.25
Retail lettable 0.025
Total recoverable amount 0.275
Total cash inflow 34.84
Cash outflow
Agent commission 0.50985
Overhead costs 10.659
Contingency costs 17.765
Office lettable 8
Retail lettable 0.8
Total outgoings 8.8
Total cash outflow 37.73
Net cash flow -2.90
Proposal 1
Particulars Amount
Cash inflow
Sales
2
Office lettable 41.25
Retail lettable 2.5
Total sales 43.75
Amount recoverable
Office lettable 0.375
Retail lettable 0.025
Total recoverable amount 0.4
Total cash inflow 44.15
Cash outflow
Agent commission 0.811125
Overhead costs 11.439
Contingency costs 19.065
Office lettable 8
Retail lettable 0.8
Total outgoings 8.8
Total cash outflow 40.12
Net cash flow 4.03
Estimate the net income on completion of project
Proposal 2
Particulars Amount
Sales
Office lettable 27.5
Retail lettable 2.5
Flat 4.56
Total sales 34.56
Amount recoverable
Office lettable 0.25
Retail lettable 0.025
Total recoverable amount 0.275
Total income 34.84
Expenses
Office lettable 8
Retail lettable 0.8
Total outgoings 8.8
Agent commission 0.640742
Payment
40% of payment 28.84
60% of payment 44.52
Total payment 73.36
Total expenses 82.80074
Net loss -47.97
3
Retail lettable 2.5
Total sales 43.75
Amount recoverable
Office lettable 0.375
Retail lettable 0.025
Total recoverable amount 0.4
Total cash inflow 44.15
Cash outflow
Agent commission 0.811125
Overhead costs 11.439
Contingency costs 19.065
Office lettable 8
Retail lettable 0.8
Total outgoings 8.8
Total cash outflow 40.12
Net cash flow 4.03
Estimate the net income on completion of project
Proposal 2
Particulars Amount
Sales
Office lettable 27.5
Retail lettable 2.5
Flat 4.56
Total sales 34.56
Amount recoverable
Office lettable 0.25
Retail lettable 0.025
Total recoverable amount 0.275
Total income 34.84
Expenses
Office lettable 8
Retail lettable 0.8
Total outgoings 8.8
Agent commission 0.640742
Payment
40% of payment 28.84
60% of payment 44.52
Total payment 73.36
Total expenses 82.80074
Net loss -47.97
3
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Proposal 1
Particulars Amount
Sales
Office lettable 41.25
Retail lettable 2.5
Total sales 43.75
Amount recoverable
Office lettable 0.375
Retail lettable 0.025
Total recoverable amount 0.4
Total income 44.15
Expenses
Office lettable 12
Retail lettable 0.8
Total outgoings 12.8
Agent commission 0.811125
Payment
40% of payment 28.84
60% of payment 44.52
Total payment 73.36
Total expenses 86.97113
Net loss -42.82
Calculate the following:
Total development cost
Proposal1
Particulars Amount(In million)
Land acquisition costs 70
Demolition Estimate 0.8
Planning and Design cost 3.5
Landscaping and external work 0.5
Cost of design and construction 350
Cost of development 0.5
Total 425.3
Proposal 2
Particulars Amount(In million)
Land acquisition costs 70
Demolition Estimate 0.8
Planning and Design cost 4.5
Landscaping and external work 0.5
Cost of design and construction 375
Cost of development 0.5
4
Particulars Amount
Sales
Office lettable 41.25
Retail lettable 2.5
Total sales 43.75
Amount recoverable
Office lettable 0.375
Retail lettable 0.025
Total recoverable amount 0.4
Total income 44.15
Expenses
Office lettable 12
Retail lettable 0.8
Total outgoings 12.8
Agent commission 0.811125
Payment
40% of payment 28.84
60% of payment 44.52
Total payment 73.36
Total expenses 86.97113
Net loss -42.82
Calculate the following:
Total development cost
Proposal1
Particulars Amount(In million)
Land acquisition costs 70
Demolition Estimate 0.8
Planning and Design cost 3.5
Landscaping and external work 0.5
Cost of design and construction 350
Cost of development 0.5
Total 425.3
Proposal 2
Particulars Amount(In million)
Land acquisition costs 70
Demolition Estimate 0.8
Planning and Design cost 4.5
Landscaping and external work 0.5
Cost of design and construction 375
Cost of development 0.5
4
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Total 451.3
Project finance cost
Proposal 1
Particulars 1 2 3
Demolition estimate 0.8 0.8 0.8
Planning and design 3.5 3.5 3.5
Landscaping and external work 0.5 0.5 0.5
Cost of design and construction 350 350 350
Development costs 0.5 0.5 0.5
Leasing and sales costs 4.375 0 0
Interest 42.636 42.636 42.636
Overhead costs 10.659 10.659 10.659
Contingency costs 17.765 17.765 17.765
Total cash outflow 430.735 426.36 426.36
Particulars 1 2 3
Demolition estimate 0.8 0.8 0.8
Planning and design 4.5 4.5 4.5
Landscaping and external work 0.5 0.5 0.5
Cost of design and construction 375 375 375
Development costs 0.5 0.5 0.5
Leasing and sales costs 5.5685 0 0
Interest 45.756 45.756 45.756
Overhead costs 11.439 11.439 11.439
Contingency costs 19.065 19.065 19.065
Total cash outflow 463.1285 457.56 457.56
Cost escalation
Proposal 2
Particulars Amount
Office 1.1
Retail 0.1
Flat 0.1824
Total 1.3824
Particulars Amount
Office 1.65
Retail 0.1
5
Project finance cost
Proposal 1
Particulars 1 2 3
Demolition estimate 0.8 0.8 0.8
Planning and design 3.5 3.5 3.5
Landscaping and external work 0.5 0.5 0.5
Cost of design and construction 350 350 350
Development costs 0.5 0.5 0.5
Leasing and sales costs 4.375 0 0
Interest 42.636 42.636 42.636
Overhead costs 10.659 10.659 10.659
Contingency costs 17.765 17.765 17.765
Total cash outflow 430.735 426.36 426.36
Particulars 1 2 3
Demolition estimate 0.8 0.8 0.8
Planning and design 4.5 4.5 4.5
Landscaping and external work 0.5 0.5 0.5
Cost of design and construction 375 375 375
Development costs 0.5 0.5 0.5
Leasing and sales costs 5.5685 0 0
Interest 45.756 45.756 45.756
Overhead costs 11.439 11.439 11.439
Contingency costs 19.065 19.065 19.065
Total cash outflow 463.1285 457.56 457.56
Cost escalation
Proposal 2
Particulars Amount
Office 1.1
Retail 0.1
Flat 0.1824
Total 1.3824
Particulars Amount
Office 1.65
Retail 0.1
5
Total 1.75
Calculate the initial project development yield on completion of the project
Proposal 1
Particulars Amount
Rental income
Office 41.25
Retail 2.5
Total rental income 43.75
Ongoing costs
Office 12
Retail 0.8
Total ongoing costs 12.8
Initial development 30.95
Initial development yield 0.3095
Proposal 2
Particulars Amount
Rental income
Office 27.5
Retail 2.5
Flat 4.56
Total rental income 34.56
Ongoing costs
Office 8
Retail 0.8
Total ongoing costs 8.8
Initial development 25.76
Initial development yield 0.2576
PART B
Calculate the purchase price of purchasing facility
Proposal 1
Particulars Amount
Land acquisition costs 70
Demolition Estimate 0.8
Planning and Design cost 3.5
Landscaping and external work 0.5
Cost of design and construction 350
Cost of development 0.5
Total costs 425.3
6
Calculate the initial project development yield on completion of the project
Proposal 1
Particulars Amount
Rental income
Office 41.25
Retail 2.5
Total rental income 43.75
Ongoing costs
Office 12
Retail 0.8
Total ongoing costs 12.8
Initial development 30.95
Initial development yield 0.3095
Proposal 2
Particulars Amount
Rental income
Office 27.5
Retail 2.5
Flat 4.56
Total rental income 34.56
Ongoing costs
Office 8
Retail 0.8
Total ongoing costs 8.8
Initial development 25.76
Initial development yield 0.2576
PART B
Calculate the purchase price of purchasing facility
Proposal 1
Particulars Amount
Land acquisition costs 70
Demolition Estimate 0.8
Planning and Design cost 3.5
Landscaping and external work 0.5
Cost of design and construction 350
Cost of development 0.5
Total costs 425.3
6
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Yield at5% 21.265
Purchase price 446.565
Proposal 2
Particulars Amount
Land acquisition costs 70
Demolition Estimate 0.8
Planning and Design cost 4.5
Landscaping and external work 0.5
Cost of design and construction 375
Cost of development 0.5
Total 451.3
Yield at 5% 22.565
Purchase price 473.865
Calculate developer’s profit or loss
Proposal 1
Particulars Amount
Rental income
Office 41.25
Retail 2.5
Total rental income 43.75
Developer's cost
Overhead's cost 10.659
Contingency costs 17.765
Total developer's cost 28.424
Profit/loss 15.326
Proposal 2
Particulars Amoun
t
Rental income
Office 27.5
Retail 2.5
Flat 4.56
Total rent 34.56
Developer's cost
7
Purchase price 446.565
Proposal 2
Particulars Amount
Land acquisition costs 70
Demolition Estimate 0.8
Planning and Design cost 4.5
Landscaping and external work 0.5
Cost of design and construction 375
Cost of development 0.5
Total 451.3
Yield at 5% 22.565
Purchase price 473.865
Calculate developer’s profit or loss
Proposal 1
Particulars Amount
Rental income
Office 41.25
Retail 2.5
Total rental income 43.75
Developer's cost
Overhead's cost 10.659
Contingency costs 17.765
Total developer's cost 28.424
Profit/loss 15.326
Proposal 2
Particulars Amoun
t
Rental income
Office 27.5
Retail 2.5
Flat 4.56
Total rent 34.56
Developer's cost
7
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Overhead's cost 11.439
Contingency costs 19.065
Total developer's
cost
30.504
Profit/loss 4.056
Generate an Annual net cash flow for John Wiley Pty Ltd for 10 years
Net Annual cash
flow
Particu
lars 1 2 3 4 5 6 7 8 9 10
Cash
flow
426.
36
447.
678
470.0
619
493.5
65
518.2
432
544.1
554
571.3
632
599.9
313
629.9
279
661.4
243
Particu
lars 1 2 3 4 5 6 7 8 9 10
Cash
flow
457.
56
480.
438
504.4
599
529.6
829
556.1
67
583.9
754
613.1
742
643.8
329
676.0
245
709.8
257
Determine NPV using 9% discounting rate with base year 2020
Proposal 1
Year Cash flow Pv@9% Present value
0 446.565
1 426.36 0.917431 391.156
2 447.678 0.84168 376.8016
3 470.0619 0.772183 362.974
4 493.565 0.708425 349.6539
5 518.2432 0.649931 336.8226
6 544.1554 0.596267 324.4621
7 571.3632 0.547034 312.5552
8 599.9313 0.501866 301.0853
9 629.9279 0.460428 290.0363
10 661.4243 0.422411 279.3928
Total 3324.94
NPV 2878.375
Proposal 2
Year Cash flow Pv@9% Present value
0 473.865
8
Contingency costs 19.065
Total developer's
cost
30.504
Profit/loss 4.056
Generate an Annual net cash flow for John Wiley Pty Ltd for 10 years
Net Annual cash
flow
Particu
lars 1 2 3 4 5 6 7 8 9 10
Cash
flow
426.
36
447.
678
470.0
619
493.5
65
518.2
432
544.1
554
571.3
632
599.9
313
629.9
279
661.4
243
Particu
lars 1 2 3 4 5 6 7 8 9 10
Cash
flow
457.
56
480.
438
504.4
599
529.6
829
556.1
67
583.9
754
613.1
742
643.8
329
676.0
245
709.8
257
Determine NPV using 9% discounting rate with base year 2020
Proposal 1
Year Cash flow Pv@9% Present value
0 446.565
1 426.36 0.917431 391.156
2 447.678 0.84168 376.8016
3 470.0619 0.772183 362.974
4 493.565 0.708425 349.6539
5 518.2432 0.649931 336.8226
6 544.1554 0.596267 324.4621
7 571.3632 0.547034 312.5552
8 599.9313 0.501866 301.0853
9 629.9279 0.460428 290.0363
10 661.4243 0.422411 279.3928
Total 3324.94
NPV 2878.375
Proposal 2
Year Cash flow Pv@9% Present value
0 473.865
8
1 457.56 0.917431 419.7798
2 480.438 0.84168 404.3751
3 504.4599 0.772183 389.5356
4 529.6829 0.708425 375.2407
5 556.167 0.649931 361.4704
6 583.9754 0.596267 348.2054
7 613.1742 0.547034 335.4273
8 643.8329 0.501866 323.118
9 676.0245 0.460428 311.2605
10 709.8257 0.422411 299.8381
Total 3568.251
NPV 3094.386
Calculate Net present value of sale
Particulars Amount Pv@9%
Present value of
sale
Initial value of sale 883.92 883.92
cash flow of 10th year 900 0.422411 380.1697
NPV -503.75
Calculate Profit and IRR
Proposal 1
Year Average profit
0 446.565
1 426.36
2 447.678
3 470.0619
4 493.565
5 518.2432
6 544.1554
7 571.3632
8 599.9313
9 629.9279
10 661.4243
Total 5362.71
Average 536.271
ARR 120%
Proposal 2
Year Average profit
0 473.865
1 457.56
9
2 480.438 0.84168 404.3751
3 504.4599 0.772183 389.5356
4 529.6829 0.708425 375.2407
5 556.167 0.649931 361.4704
6 583.9754 0.596267 348.2054
7 613.1742 0.547034 335.4273
8 643.8329 0.501866 323.118
9 676.0245 0.460428 311.2605
10 709.8257 0.422411 299.8381
Total 3568.251
NPV 3094.386
Calculate Net present value of sale
Particulars Amount Pv@9%
Present value of
sale
Initial value of sale 883.92 883.92
cash flow of 10th year 900 0.422411 380.1697
NPV -503.75
Calculate Profit and IRR
Proposal 1
Year Average profit
0 446.565
1 426.36
2 447.678
3 470.0619
4 493.565
5 518.2432
6 544.1554
7 571.3632
8 599.9313
9 629.9279
10 661.4243
Total 5362.71
Average 536.271
ARR 120%
Proposal 2
Year Average profit
0 473.865
1 457.56
9
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