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You Are An Engineering Company With A Track Record in Design and Construction of Multi

The company is considering building a new 1,200 space car park for a university over a 20 year period. They must analyze the project costs and revenues to determine feasibility. Key project assumptions and estimates are provided regarding construction costs, operating expenses, occupancy rates, parking fees and other financial details. A net present value analysis of the project's cash flows must be completed using a spreadsheet model to evaluate the project's profitability.

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531 views3 pages

You Are An Engineering Company With A Track Record in Design and Construction of Multi

The company is considering building a new 1,200 space car park for a university over a 20 year period. They must analyze the project costs and revenues to determine feasibility. Key project assumptions and estimates are provided regarding construction costs, operating expenses, occupancy rates, parking fees and other financial details. A net present value analysis of the project's cash flows must be completed using a spreadsheet model to evaluate the project's profitability.

Uploaded by

Gamer zone
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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You are an engineering company with a track record in design and construction

of multi-storey car-park facilities. A university has approached you with a


possible opportunity to finance, build, own and operate a new car-park facility
on terms of a 20 year concession period.

Information available from the client is summarised as follows:


 The existing car parking arrangements comprise 300 on grade spaces for
customers. These are inadequate for the client, and due to growth
predictions a multi-level car parkof 1,200 spaces is required.
 Project is located in Auckland NZ.
 Academic year is split into 40 weeks of teaching and 12 weeks of
holiday.
 Number of staff = 700 (constant all year round).
 Number of students = 5,500 during term time and = 1,000 during holiday
times.
 A recent survey of students and staff indicates that a parking charge of
approximately $3.00 per hour would be acceptable.
 No funds are available from the client for the development of support
infrastructure such as car parking. However the client is prepared to enter
a long term lease for land already owned by the them at a peppercorn rent
of $1 per annum. At the end of the 20 concession period the ownership of
the car-park building is transferred to the University for a pre-agreed sale
price of $1.
 Under the Build / Own / Operate / Transfer arrangement the company
collects all revenues and is liable for all risks and costs associated with
the car-park facility.
 Client is open to suggestions for project innovations.

Following an initial discussions with the client you determine that the following
assumptions are reasonable:

Occupancy Assumed Times Estimated Occupancy Level


profiles

Weekday profile Weekend Profile

Term Holiday Term Holiday

Day 9am- 5pm 75% 60% 40% 30%

Evening 5pm- 9pm 60% 40% 30% 20%

Night 9pm-9am 5% 0% 0% 0%
The client confirms that there is also potential revenue from parking fines. The client prefers
a pay and display method of ticketing (i.e. no entry/exit barriers). The client would be
agreeable to a fine of approximately $60 for failing to display a ticket. It is estimated that
approximately 2% of users would not pay and display their tickets, of which fines would be
successfully collected from 15% of defaulters.
From your expertise in building, owning and operating car-parks in New Zealand you collect
the following data:

PROJECT CAPEX ESTIMATES Rate Estimates


Number of spaces N0 1200

Area per park m2 27.5

Area of parking m2 33,000

Construction cost per m2 parking $/m2 $1,200

Professional fees (%) % 10%

Other costs
consents item $200,000

Legal Costs item $200,000

Development levy item $600,000

Major refurb cost allowance in Yr 10 item $2,000,000

OPEX ESTIMATES Estimates


General Operating costs for the car park per annum $100,000
(excl GST)

Salary Costs (Car-park attendants-part time) per $50,000


annum (incl GST)
Head office overheads (incremental) per annum (excl $10,000
GST)
Initial working capital required (inc GST) $100,000
ADDITIONAL INFORMATION Estimates
Revenue and cost inflation rate 3:50%

Tax rate 30.0%

Required rate return on equity Cost of debt 20.0%

Maximum Debt Funding available from bank 9.0

GST rate 15%

Your company has recently spent $1,200,000 researching and developing a new
type of re-useable floor formwork. This work is not yet complete and is
estimated to cost a further
$500,000 to bring to successful competition. There is a 50% chance that the
research and development will be complete in time to implement for this
project. If successful it is estimated will save 1% to 2% of the construction costs
for all future car park projects constructed by your company. The company uses
a straight line depreciation method. The design and construction time period for
the car-park is estimated to be 12 months from start to completion.

1. Complete a NPV analysis for the project using all the information available.
2. Prepare the analysis using a spread sheet (MS Excel). Clearly label the
columns and rows in the spread sheet and provide sufficient annotation to
illustrate your logic and methods of analysis.
3. Prepare a cumulative NPV chart (plotting NPV against years), showing the
NPV break-even point

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