Strategic Property, Assets and Facilities Management – Marian Gardens Lane

Question 1

Urban & Redevelopment Authority has launched a site in Marina Gardens Lane under the government land sale programme.

Link to the Marina Gardens Lane site:

Marina Gardens Lane

As the asset manager, appraise the minimum bid price for the land (round up to the nearest hundred thousand) to demonstrate an internal rate of return not less than 2.5% to 3.5% using the discounted cash flow analysis.

Embed your MS Excel file into your MS Word file (MS Word>INSERT>Object>Create from File>Browse>Select your MS Excel file>Insert>Select “Display as an icon”>Click “OK”). In one excel file, create:

(a) A worksheet and name it as “IRR” showing your IRR calculation.

(b) A worksheet and name it as “Cash In” showing your cash in calculation.

(d) A worksheet and name it as “Summary” fill in the following information:

Total Site Area		m²
Maximum Site GFA		m²
Maximum Commercial GFA		m²
Maximum Residential GFA		m²
Commercial Construction Cost	$
Residential Construction Cost	$
Total Construction Cost	$
Total Sale of Residential Units	$
Total Rental of Commercial Space	$
Total Cash In	$
Total Cash Out	$
Minimum Bid Price for Land	$

Use the following assumptions for your calculations:

Construction cost of commercial/office	$2700/m²
Construction cost of residential unit	$4000/m²
Construction Duration	2 years
Ratio of lettable floor area to gross floor area	0.9 : 1
Residential sale price	$2800 per square feet
Commercial rental price	$3500 per square feet
Monthly service charge	$1 per square feet
Per square metres to per square foot	1m²= 10.7639 ft²
Income from sale of residential flats	Time
	20% before construction
	30% at Year 1 of construction
	30% at Year 2 of construction
	20% immediately after construction

Vacancy Rate & Rental Increase:

Year	Vacancy Rate (%)	Rental Increase (%)
2	5	0
3	0	0
4	0	5
5	0	5
6	5	5
7	5	5
8	5	5
9	5	5
10	10	5

Question 2

TZ Ltd. is evaluating a new investment project that requires an initial outlay of $100,000. The project is expected to generate the following cash inflows over 5 years:

Year	Cash Inflow ($)
1	25,000
2	30,000
3	35,000
4	30,000
5	20,000

The company’s required rate of return is 10%.

Question 2a

Formulate the financial model to calculate the Project’s Net Present Value (NPV).

Question 2b

Apply the principles of Internal Rate of Return (IRR) to evaluate whether the investment meets the required rate of return.

Question 2c

Based on your calculations, recommend whether TZ Ltd. should proceed with the investment.

Expert Answers on Above Questions on Accounting

Determination of the minimum bid price

The discounted cash flow model is used in determining the minimum with price and the total cash inflows are discounted against the total cash outflows. The inflows are the residential sales and commercial rental income while the outflows are construction and development cost. The price of the land is considered as residual value and it is adjusted using the internal rate of return within 2.5% to 3.5%.
The minimum with price is present value of cash inflows – present value of cash outflows excluding the land cost.

Npv calculation

Initial investment – $100000
Discount rate – 10%
The cash inflows for different years are – 1st-25000, 2nd – 30000, 3rd-35000, 4th – 30000 and 5th – 20000
NPV calculation – present value of each cash flow which is 106702 – 100000= 6702
IRR calculation @15% – the total present value at 15% is 94524 and initial investment is 100000, so its -5476. By applying the interpolation formula, the IRR is calculated at 12.75%

Decision

The calculation shows the IRR is 12.75% and the required rate of return is 10% while the NPV is positive at 6702, hence it is favourable to accept the project.

This model answer is reviewed by Rui Shi, financial accounting expert good at performing financial analysis of companies.

Disclaimer: This answer is a model for study and reference purposes only. Please do not submit it as your own work.

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Accounting assignments involving the calculation of NPV and IRR to evaluate a project requires good understanding of these techniques and accounting knowledge and understanding. If you are looking for assistance with your accounting assignment, consult our professional accounting assignment help experts to get a detailed explanation of the above questions. Not only with accounting, you can visit our assignment help Singapore page to get assistance in assignment across all subjects.