Magma Construction Company

Magma Construction CompanyCapital Budgeting Project

ProjectProject:MODERN TOWNSHIPMODERN TOWNSHIP

•LOCATION – GANDHINAGARLOCATION – GANDHINAGAR• 500 acre of space.500 acre of space.

• Education and medical facilities at a small Education and medical facilities at a small distance .distance .

•Eco friendly atmosphere.Eco friendly atmosphere.

Capital (source)

•50 % of the capital is sourced through bank loan at an interest of 10% p.a.•The rest of the capital is sourced in the following manner – 1)25% - unsecured loans 2)25% - personal wealth

Construction Cost Estimation

The construction process is outsourced through a company named PMC . All of the projects are sub projects of the township project and are carried out simultaneously . The following is the estimate of construction costs incurred in these sub projects.

Township project

Project A Project B Project C

Project A (Flats)(25crore*5)Project A (Flats)(25crore*5)

•Construction cost – Construction cost – 1) Raw material costs – 10 crore1) Raw material costs – 10 crore 2) Labor costs – 1 crore 2) Labor costs – 1 crore -skilled -skilled -unskilled-unskilled 3) Employee costs – 10 crore3) Employee costs – 10 crore -Civil Engineers-Civil Engineers -Architectural engineers(1%)-Architectural engineers(1%) -Structural engineers(1%)-Structural engineers(1%)•Profit share of 5% - 1.25 croreProfit share of 5% - 1.25 crore•Provision for Accidental damage and loss – 2.75 croreProvision for Accidental damage and loss – 2.75 crore

Project B (Hospital)(80 crore)Project B (Hospital)(80 crore)

•Construction cost – 1) Raw material costs – 30 crore 2) Labor costs – 5 crore -skilled -unskilled 3) Employee costs – 30 crore -Civil Engineers -Architectural engineers(1%) -Structural engineers(1%)•Profit share of 10% - 8 crore •Provision for Accidental damage and loss – 7 crore

Project C (School)(60 crore)Project C (School)(60 crore)

•Construction cost – 1) Raw material costs – 20 crore 2) Labor costs – 10 crore -skilled -unskilled 3) Employee costs – 20 crore -Civil Engineers -Architectural engineers(1%) -Structural engineers(1%)•Profit share of 10% - 6 crore •Provision for Accidental damage and loss – 4 crore

Project D(Garden Museum) ( 4 crore)Project D(Garden Museum) ( 4 crore)

•Construction cost – 1) Raw material costs – 25 lacs 2) Labor costs – 50 lacs -skilled -unskilled 3) Employee costs – 2 crores -Civil Engineers -Architectural engineers(1%) -Structural engineers(1%)•Profit share of 25 lacs •Provision for Accidental damage and loss – 1 crore

Project Planning period

Township project

12 months

Construction planning

(2 months)

Execution and Finishing Plan

(2 months)

Approvals and Permissions(8 months)

Debt Repayment Target

Repayment of Secured loan (Total Interest after 3 years = 31.1%)

Repayment of Unsecured loan

Increase cash flows to reduce the period of time of repayment.

Revenue estimation

Revenue from sale of school = 50 crore.

Revenue from sale of Hospital = 100 crore.

Revenue from sale of museum tickets = 2 crore

Revenue from sale of high rise apartments = R.s. 125 crore (25*5)

Repayment cycle•Total project cost = R.s 277 crore •Total insurance = R.s. 150 crore•Sum total = R.s. 427 crore•Sum total debt = R.s. 450 (50% secured, 25% unsecured, 25% personal wealth )•Gross Income = 150 crore p.a.•Total amount of secured loan = R.s. 225 crore.•Total interest on loan after execution time of 3 years = 31.1% = R.s. 299.48 crore•Repayment period = Project Cost /Gross income = 277+299.48/150 = 3.84 years (round off to 4)