Group1 DLK Builders

8/3/2019 Group1 DLK Builders

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DLK Builders

Group 1


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INTRODUCTION

DLK Builders is contemplating to venture into a residential project Raja Chola Heights. It

has the experience of completing twelve such projects in the past. The facts of the case and

the contract between the owner of the land and DLK are as predictable below.

Total Area available 25000 sq.ft

Area available for construction 21250 sq.ft

Non-constructed area 3750 sq.ft

Non-constructed area available for sale byDLK 1875 sq.ft

Owners share of non-constructed area 1875 sq.ft

Owners share of constructed area 10625 sq.ft

DLKs share of constructed area for sale 10625 sq.ft

DLK expects to sell the project on the opening day itself and it offers a price which is 20%

less than the market price. The sale price offered is Rs.8500 per sq.ft and the cost of

construction is Rs.3000 per sq.ft. DLK expects the project to be completed within 24 months

and the buyers are expected to pay the monthly installments on time without considering the

status of the project. DLK also pays tax on the receipts on a monthly basis at 5%. DLK

builders anticipate a profit of Rs.40 million and the facts and figures are to be used to

evaluate the same.

SOLUTION BASED ON THE FINANCIAL EVALUATION

Based on the facts and figures available, the calculations were carried out and the following

results were obtained.

The NPV for the project was estimated to be Rs.32,052,015

The terminal value of the project was calculated at Rs. 42340299

The XNPV for the project was estimated to be Rs. 32327973

The future value of the profit was estimated to be Rs. 42013433


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The XNPV value and the corresponding future value of the profit are considered to be the

best estimate as the payments and receipts are not at the same point of time. Few are at the

beginning and few are at the end of the month.

The company, DLK Builders anticipates a profit of Rs. 40,000,000. It is assumed that the

company expects the profit at the future date i.e. after 24 months on the opening day.

Therefore, the future value is considered for comparison and since this value is greater than

Rs. 40,000,000 , we recommend that the project be taken by DLK Builders provided they

complete it within the said duration.

SCHEDULE 1

ASSUMPTIONS

The following assumptions have been made to solve the case:

Both the constructed and the non-constructed area are divided equally between the

owner and DLK builders.

Sale value which is given in the case is taken to be the value after reducing 20% from

the market price.

Sale value of the non-constructed area and the constructed area are assumed to be the

same.

The receipts from the buyers are assumed to be at the beginning of each month i.e. 1 st

of each month.

The cost of construction which is paid in advance is assumed to be paid at the

beginning of the month of that particular quarter. The tax payments are made at the

end of each month i.e. the last date of each month.

SCHEDULE 2


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WORKINGS

Cost & Revenue Amount (Rs.)

Total cost of construction 63750000

Total Selling 106250000

No of Quarters 8

Cost payment in each Quarter 7968750

No of payments 24

Dues received monthly 4427083

The calculation of XNPV is as shown below.

Date(Imaginary) Inflow (sales)

Outflow1(tax)

Outflow2(Cost) Net outflow

01-01-2011 4427083 0 -7968750 -3541667

31-01-2011 0 -221354 0 -221354

01-02-2011 4427083 0 0 4427083

28-02-2011 0 -221354 0 -221354

01-03-2011 4427083 0 0 4427083

31-03-2011 0 -221354 0 -221354

01-04-2011 4427083 0 -7968750 -3541667

30-04-2011 0 -221354 0 -221354

01-05-2011 4427083 0 0 4427083

31-05-2011 0 -221354 0 -221354

01-06-2011 4427083 0 0 4427083

30-06-2011 0 -221354 0 -221354

01-07-2011 4427083 0 -7968750 -3541667

31-07-2011 0 -221354 0 -221354

01-08-2011 4427083 0 0 4427083

31-08-2011 0 -221354 0 -22135401-09-2011 4427083 0 0 4427083

30-09-2011 0 -221354 0 -221354

01-10-2011 4427083 0 -7968750 -3541667

31-10-2011 0 -221354 0 -221354

01-11-2011 4427083 0 0 4427083

30-11-2011 0 -221354 0 -221354

01-12-2011 4427083 0 0 4427083

31-12-2011 0 -221354 0 -221354

01-01-2012 4427083 0 -7968750 -3541667

31-01-2012 0 -221354 0 -22135401-02-2012 4427083 0 0 4427083


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29-02-2012 0 -221354 0 -221354

01-03-2012 4427083 0 0 4427083

31-03-2012 0 -221354 0 -221354

01-04-2012 4427083 0 -7968750 -3541667

30-04-2012 0 -221354 0 -221354

01-05-2012 4427083 0 0 4427083

31-05-2012 0 -221354 0 -221354

01-06-2012 4427083 0 0 4427083

30-06-2012 0 -221354 0 -221354

01-07-2012 4427083 0 -7968750 -3541667

31-07-2012 0 -221354 0 -221354

01-08-2012 4427083 0 0 4427083

31-08-2012 0 -221354 0 -221354

01-09-2012 4427083 0 0 4427083

30-09-2012 0 -221354 0 -22135401-10-2012 4427083 0 -7968750 -3541667

31-10-2012 0 -221354 0 -221354

01-11-2012 4427083 0 0 4427083

30-11-2012 0 -221354 0 -221354

01-12-2012 4427083 0 0 4427083

31-12-2012 0 -221354 0 -221354

XNPV = Rs. 32327973. The future value of the profit based on XNPV is estimated to be Rs.

42013433. The NPV was calculated as follows.

Month

CashInflow Tax Cost

TotalOutflow

PresentvalueFactor

PresentValueInflow

PresentValue

Outflow

04427083.

33379687

50 7968750 14427083.

333 7968750

14427083.

33322135

4.2221354.1

6670.988467

8754376029.

654218801.4

827

24427083.

33322135

4.2221354.1

6670.977068

7394325564.

732216278.2

366

3

4427083.

333

22135

4.2

79687

50

8190104.

167

0.965801

06

4275681.

778

7910011.

289

44427083.

33322135

4.2221354.1

6670.954663

3224226374.

08211318.7

04

54427083.

33322135

4.2221354.1

6670.943654

0254177635.

005208881.7

503

64427083.

33322135

4.279687

508190104.

1670.932771

6884129457.

9957639497.

292

74427083.

33322135

4.2221354.1

6670.922014

8484081836.

569204091.8

284

84427083.

33322135

4.2221354.1

6670.911382

0584034764.

318201738.2

159

9 4427083.333 221354.2 7968750 8190104.167 0.900871886 3988234.911 7378234.586


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104427083.

33322135

4.2221354.1

6670.890482

9183942242.

087197112.1

043

114427083.

33322135

4.2221354.1

6670.880213

7583896779.

657194838.9

829

12

4427083.

333

22135

4.2

79687

50

8190104.

167

0.870063

023

3851841.

507

7125906.

787

134427083.

33322135

4.2221354.1

6670.860029

3473807421.

588190371.0

794

144427083.

33322135

4.2221354.1

6670.850111

3813763513.

926188175.6

963

154427083.

33322135

4.279687

508190104.

1670.840307

793720112.

6126882208.

332

164427083.

33322135

4.2221354.1

6670.830617

2553677211.

807183860.5

904

174427083.

33322135

4.2221354.1

6670.821038

4733634805.

74181740.2

87

18

4427083.

333

22135

4.2

79687

50

8190104.

167

0.811570

155

3592888.

705

6646844.

105

194427083.

33322135

4.2221354.1

6670.802211

0263551455.

063177572.7

532

204427083.

33322135

4.2221354.1

6670.792959

8283510499.

239175524.9

619

214427083.

33322135

4.279687

508190104.

1670.783815

3163470015.

7226419529.

085

224427083.

33322135

4.2221354.1

6670.774776

263429999.

066171499.9

533

234427083.

33322135

4.2221354.1

6670.765841

4433390443.

887169522.1

944

24 022135

4.2221354.1

6670.757009

663 0167567.2

432

Aggregate Present value ofInflow

93281892.98

Aggregate Present value ofOutflow

61229877.54

Net Present Value3205201

5.44

The terminal value of the profit was estimated as follows.

Month

CashInflow

Tax CostTotalOutflow

FuturevalueFactor

FutureValueInflow

FutureValue

Outflow

04427083.

33796875

0 79687501.320987

15848119.

97410526615

.95

14427083.

33221354.1

67221354.1

6671.305753

3115780678.

723289033.9

361

24427083.

33221354.1

67221354.1

6671.290695

2015714015.

212285700.7

606

34427083.

33221354.1

67796875

08190104.

1671.275810

7425648120.

47310449022

.88


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44427083.

33221354.1

67221354.1

6671.261097

9335582985.

641279149.2

82

54427083.

33221354.1

67221354.1

6671.246554

7945518601.

951275930.0

976

6

4427083.

33

221354.1

67

796875

0

8190104.

167

1.232179

368

5454960.

742

10091677

.37

74427083.

33221354.1

67221354.1

6671.217969

7215392053.

452269602.6

726

84427083.

33221354.1

67221354.1

6671.203923

9425329871.

617266493.5

808

94427083.

33221354.1

67796875

08190104.

1671.190040

145268406.

879746552.

709

104427083.

33221354.1

67221354.1

6671.176316

4485207650.

942260382.5

471

114427083.

33221354.1

67221354.1

6671.162751

025147595.

659257379.7

83

12

4427083.

33

221354.1

67

796875

0

8190104.

167

1.149342

029

5088232.

942

9413230.

942

134427083.

33221354.1

67221354.1

6671.136087

6735029554.

802251477.7

401

144427083.

33221354.1

67221354.1

6671.122986

1684971553.

347248577.6

673

154427083.

33221354.1

67796875

08190104.

1671.110035

7514914220.

7719091308.

426

164427083.

33221354.1

67221354.1

6671.097234

6794857549.

362242877.4

681

174427083.

33221354.1

67221354.1

6671.084581

2324801531.

494240076.5

747

184427083.

33221354.1

67796875

08190104.

1671.072073

7054746159.

6328780395.

319

194427083.

33221354.1

67221354.1

6671.059710

4174691426.

325234571.3

162

204427083.

33221354.1

67221354.1

6671.047489

7044637324.

209231866.2

105

214427083.

33221354.1

67796875

08190104.

1671.035409

9214583846.

0068480115.

111

224427083.

33221354.1

67221354.1

6671.023469

4444530984.

52226549.2

26

234427083.

33221354.1

67221354.1

6671.011666

6674478732.

639223936.6

319

24 0221354.1

67221354.1

667 1 0221354.1

667

Aggregate Future value ofInflow

123224177.3

Aggregate Future value ofOutflow

80883878.37

Terminal Value42340298

.93

Group1 DLK Builders

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