Detailed Project Investment Analysis: City Highrise Development

This project investment analysis evaluates the financial feasibility of the City Highrise Development Complex. It breaks down the development costs, performs cash flow analysis, and employs income and cost approaches for real estate valuation. The analysis considers different financing methods, assesses potential risks through sensitivity analysis, and recommends a thorough financial analysis using varied assumptions for operating costs and revenue. The project is divided into four phases, each covering important aspects of development and related costs. It further explores an exit route involving the sale to John Willey Pty Ltd, analyzing net present value and profitability. The report also examines the impact of changing debt-equity ratios and concludes with a risk and sensitivity analysis to highlight key areas of concern and factors influencing project outcomes. Desklib provides access to this document along with other valuable study resources.

Running head: PROJECT INVESTMENT ANALYSIS
Project Investment Analysis
Name of the Student:
Name of the University:
Author’s Note:

1PROJECT INVESTMENT ANALYSIS
Serial Particulars Yes No
1 Development Cost Calculations Yes -
2 Development Plan Report Yes -
3 Cash Flow Schedule/Outlay Yes -
4 Net Income Evaluation Yes -
5 Total Development Cost of the Project Yes -
6 Project Finance Cost Yes -
7 Cost Escalation Yes -
8 Yield on Project Yes -
9 Forecasting Revenue for 10 years Yes -
10 Project Sale Price Yes -
11 Original Developers Profit/Loss Yes -
12 N.P.V for John Willey Pty Ltd Yes -
13 Profit/Loss Evaluation for John Willey Pvt Ltd on Exit Route Yes -
14 Impact of Changing Debt: Equity Ratio Yes -
15 Risk Evaluation for City Highrise Development Project Yes -
16 Sensitivity Analysis of Project Yes -
Assignment Checklist

2PROJECT INVESTMENT ANALYSIS
668 George Street,
Melbourne, VIC 3000
Telephone [phone]
www.mckenzieandassociate.com.au
28th September 2018
Mr Con Pewter
The Managing Director
City Highrise Complex Development Option.
Level 6, 510 King William Street,
Adelaide SA 5000
Dear Mr Pewter,
Sir, we would like to inform you that the financial evaluation for the project City Highrise
Development Complex is evaluated. The financial analysis of the project gave us a brief idea
about the prospect and the overview of the project. The financial analysis helped us and gave
an overview and helped us forecast the project revenue, costs and other crucial factors. There
were certain factors and assumptions taken for evaluation and analysis taken which is
discussed in brief.
The key aspects including the development costs, project cost, revenue analysis, yield
on project and risk analysis was done to overview and know whether the project is viable and

3PROJECT INVESTMENT ANALYSIS
to check financial sustainability of the investment. The Project results shows that external
factors like cost escalation and project finance costs has hampered the revenue of the project
and the net return generated from the project is not feasible.
The Exit route for the project was determined on the basis of project being sold to
John Wiley Pty Ltd on completion and this was also taken into account while assessing the
financial feasibility of the investment project. Risk analysis in the project acted as an aid in
the project which helped us determine the key areas to focus and the factors through which
the project was most sensitive.
In case if you have any more concerns or query to follow up, please get in touch with us
through our registered official email id or contact numbers.
Yours Sincerely
Financial Consultant
McKenzie and Associates
Enclosure: Investment Advisory
Cc: Maria McKenzie

4PROJECT INVESTMENT ANALYSIS
Executive Summary
The aim of the Project Investment Analysis is to ascertain and evaluate the financial analysis
of the City High-rise Complex Development Option. The topic evaluates about the real estate
development of the assigned topic with the help of different approaches of valuation. The
analysis of the project includes the breakdown of the development cost, cash flow analysis.
The Income approach and the cost approach of valuation of private real estate were the key
factors used in the assignment. The different financing method and the applicability of the
same on the project s discussed. The possible risks and the key risk areas were ascertained
using the sensitivity and risk analysis of the project. The key recommendation for the project
would be to do a financial analysis using different assumptions of the project’s operating
costs, revenue the same will generate and the key factors involved. The project was divided
into four phase where each phase covers the important part of the project development and
the cost related to each item.

5PROJECT INVESTMENT ANALYSIS
Table of Contents
Introduction................................................................................................................................6
Assumptions...............................................................................................................................6
Methodology..............................................................................................................................8
Spreadsheet Computations & Graph/Charts..............................................................................8
Estimation of Net Income and Revenue Analysis................................................................11
Total development cost, Project financing cost and Cost of Escalation..............................12
Project Development Yield on completion of the project....................................................13
Discussion & Recommendations.............................................................................................13
Risks and Sensitivity Analysis.............................................................................................13
Risk Evaluation of City Highrise Development Project......................................................14
Sensitivity Analysis..............................................................................................................14
Exit Route Evaluation..........................................................................................................15
Acquisition Cost...............................................................................................................15
Developers Profit/Loss.........................................................................................................16
Annual Cash Flow............................................................................................................16
Net Present Value.............................................................................................................16
Profit/Net Present Value and I.R.R......................................................................................17
Impact of Changing Debt and Equity Ratio.........................................................................17
Conclusion................................................................................................................................17
Reference..................................................................................................................................18
Appendix..................................................................................................................................21

6PROJECT INVESTMENT ANALYSIS
Introduction
The project focuses on the valuation and development of the Real Estate project City
Highrise Development Complex. The project of City Highrise development cost is
distributed among four major parts. Part A of the project deals with the development costs
incurred and the significant factors like the total costs, cash flow analysis of the project, net
income from the project and total yield on the project were some of the key components
discussed in the first part. The financial evaluation of these factors at the primary stage of
investment will help assess the financial feasibility and sustainability of the project according
to the risk and return characteristic of the project as an asset class (Bellos, Tzivanidis and
Antonopoulos 2016).
Part B of the project City Highrise was evaluated from the base taken as the
developed project being sold to John Willey Pty Ltd. The Price at which the company will
purchase the same from the developer is evaluated and the following net present value or the
profit/loss generated from the transaction covers the crucial part (Ghazali et al. 2017). Part C
of the Assignment takes into account about the changing financing structure of the company
and the impact the same will have on the company’s revenue. Part D of the assignment
covers the important part of risk analysis and the sensitivity analysis of the project undertaken
(Zaman 2017).
The key financial evaluation of the project helped us determine the financial
feasibility of the project in the long run and the wealth creation or yield generation from the
same. Assumptions and methodology taken were outlined in the report.
Assumptions
The project focuses on the development costs incurred and the same was calculated
using the cost approach of the real estate valuation (Sundgren, Mäki and Somoza-López

7PROJECT INVESTMENT ANALYSIS
2018). The development plan for the City Highrise Development Project will be as taken into
view assuming that the demolition; land development and designing and construction will
start from 1st October 2018. The project is divided into 4 phase where each phase gives us a
brief about the time, effort, factors and the cost playing there role in each phase. The time
period from 1st July 2018 to 31st September will be the vesting period for the project where
the demolition of existing building work will carry on and the effective cost that would be
spent at the time frame will be around 7 million as the deposit amount of the total land and
acquisition cost which is around 70 million dollars(Bellos, Tzivanidis and Antonopoulos
2016). The total cost Accounted till the year 2018 that is the first year of the development is
around 75.9968 million dollars that will account for Inflation assumption of 4% of the 40% of
the total money spent in the first year. The planning and designing stage would go on in the
second phase of the project from 1st October 2019 to 31st March 2019. The key cost included
in this phase is the cost of designing the project that is around 50 million dollars. The third
phase of the project starts with the construction of the project the time frame involved for the
same is from 1st April 2019 to 31st December 2020. The key cost involved during the tenure
will be the construction cost of around 300 million which was treated as a cash expenses and
the relevant finance cost @12% was applied during the evaluation. Development costs and
inflation provisions will be some of the factors that will be taken into account over the time
frame. The total cost accounted till 31st December 2021 is around 429.69 million dollars
which includes forecast for the development costs, construction cost and the provisions for
inflation. The fourth phase of the project is the Landscaping and External work of the project
that will be done from 1st January 2021 to 31st June 2021. The total development cost
included in the project was around 429.69 million dollars. The Revenue for the project will
be based after the completion of the project that is from 1st July 2021. The Project revenue
will be divided from the two sources office area which will consist of 75,000 square feet of

8PROJECT INVESTMENT ANALYSIS
place which will be rented at $550 per square feet (Yeh and Hsu 2018). The retail area consist
of 5,000 square feet which will be let at $500 per square feet. The revenue escalation will be
seen at 4% p.a. and the cost of outgoings will also see similar 4% p.a. escalation. The Net
Cash Inflow will be used for determining the financial viability of the project with the total
amount of cash outflow.
Methodology
Cash Flow Analysis was performed for the project takes into assumption many factors
like distribution of the activities of real estate development with the necessary cost, role and
factors influenced in each of the four phase of the development project (Aizenman and
Jinjarak 2014). The development cost on 1st July 2018 was done on the basis of the costs
incurred by the company and reported as 10% payable of total land cost and certain other
costs lie the demolition, planning, designing and landscape costs. The project development
and other costs were distributed into four phase to get an easy layout of the development and
breakdown of cash flows. The Revenue generation analysis was done on account of primary
revenue generated from leasing the 80,000 square feet area at an average of $546.86 per
square feet. The revenue and the outgoings costs from the projects was assumed to be at 4%
escalation cost and the following net cash flow was calculated (Zheng et al. 2014).
Spreadsheet Computations & Graph/Charts
The total cost of development at 1st July 2018 is as follow:
Part A
Total Cost of Development at 1st July 2018.
Particulars Amount
Land and Acquisition Cost 7,00,00,000
(10%Payable as Deposit) 10%
Amount Payable for Land 70,00,000
Demolition Cost 8,00,000

9PROJECT INVESTMENT ANALYSIS
Planning and Designing Cost 35,00,000
Landscaping and External Work 5,00,000
Total Cost of Development at 1st July 2018. 1,13,00,000
Table 1: Total Development Cost as at 1st July 2018

10PROJECT INVESTMENT ANALYSIS
Figure 1: Cash Flow Analysis
Date Particulars Amount Comment
1st July 2018 Land and Acquisition Cost 7,00,00,000 Initial Stage
(10%Payable as Deposit) 10%
Amount Payable for Land 70,00,000
Demolition Cost 8,00,000
Planning and Designing Cost 35,00,000
Landscaping and External Work 5,00,000
Total Cost of Development at 1st July 2018. 1,13,00,000 Cash Outflow
30th Sept 2018 Total Vesting Period from 1.07.18-30.09.18 Demolition of Existing Building (3 Months)
Demolition of Builiding from (1.07.18-30.09.18) 8,00,000 Cost Utilized over the mentioned Time Frame
1st Oct 2018 Settlement Date and Transfer of Land Project Commencement
Costs to be paid
1st Phase Land and Acquisition Cost (Remaining 90% Balance) 6,30,00,000
Development Cost (Per Annum Provision) 5,00,000
Total Development Cost (Without Inflation) 7,48,00,000
Inflation Assumption 4% of 40% Invested Capital 4% Inflation Assumption 4% of 40% Invested Capital
40% of the Total Development Cost 2,99,20,000 Total Development Cost taken was 74800000
Provisions For Inflation 11,96,800
Total Development Cost (With Inflation) 7,59,96,800 Total Cost Accounted till 31.12.18
1st Jan 2019 Planning and Designing from (1.10.19-31.03.19) 35,00,000 Cost Utilized over the mentioned Time Frame
2nd Phase Cost of Designing 5,00,00,000 Designing Cost (Time 6 Months)
1st July 2019 Construction Period (1.04.19-31.12.20) 20 Months
Construction Cost 30,00,00,000
3rd Phase Development Cost (Per Annum Provision) 5,00,000 Costs During Development Period Per Annum
Inflation Assumption 6% of 60% Invested Capital 6%
60% of the Total Development Cost 4,48,80,000 Total Development Cost taken was 74800000
Provisions For Inflation 26,92,800
Total Development Cost (With Inflation) 42,86,89,600 Total Cost Accounted till 31.12.19
1st Jan 2020 Construction Period (20 months) Construction Period (1.04.19-31.12.20)
Development Cost (Per Annum Provision) 5,00,000 Costs During Development Period Per Annum
Total Development Cost 42,91,89,600 Total Cost Accounted till 31.12.20
1st Jan 2021 Landscaping and External Work (1.01.21-31.06.21) 6 Months of Time Frame
4th Phase Development Cost (Per Annum Provision) 5,00,000 Costs During Development Period Per Annum
Total Development Cost 42,96,89,600 Total Cost Accounted till 31.06.21
1st July 2021 City Highrise Complex Development Project Developed
Project Development Plan Outlay/ Cash Flow Analysis

11PROJECT INVESTMENT ANALYSIS
Estimation of Net Income and Revenue Analysis
Revenue Analysis
Particulars Square Feet Rate Amount
Office Lettable Area 75,000M^2 550/m2 4,12,50,000
Retail Lettable Area 5,000M^2 500/m2 25,00,000
Total 80,000 4,37,50,000
Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue 4,37,50,000 4,37,50,000 4,55,00,000 4,73,20,000 4,92,12,800 5,11,81,312 5,32,28,564 5,53,57,707 5,75,72,015 5,98,74,896
Annual Escalation 0% 4% 4% 4% 4% 4% 4% 4% 4% 4%
Total Cash Flow 4,37,50,000 4,55,00,000 4,73,20,000 4,92,12,800 5,11,81,312 5,32,28,564 5,53,57,707 5,75,72,015 5,98,74,896 6,22,69,892
Less: Sales Cost@10% -43,75,000 - - - - - - - - -
Outgoings 1,24,00,000 1,28,96,000 1,34,11,840 1,39,48,314 1,45,06,246 1,50,86,496 1,56,89,956 1,63,17,554 1,69,70,256 1,76,49,066
Net Cash Inflow 3,57,25,000 3,26,04,000 3,39,08,160 3,52,64,486 3,66,75,066 3,81,42,068 3,96,67,751 4,12,54,461 4,29,04,640 4,46,20,825
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Net Cash Flow -55,12,44,000 3,57,25,000 3,26,04,000 3,39,08,160 3,52,64,486 3,66,75,066 3,81,42,068 3,96,67,751 4,12,54,461 4,29,04,640 4,46,20,825
12%
-30,55,62,500
-6%
Required Rate of Return
Net Present Value
Yield Generated
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
50,000,000
Cash Inflow