Evaluation of the Overall Project Prospect - Assignment Example

A. Evaluation of the overall project prospect. Rating index process Profitability Appraisal of the business using the profitability approach is considered important since it appraise and confirm the profitability to be realized from investment on the basis of the project acceptance or drop of the project. From the analysis of the business, profitability has been a weight of 25%. Resource This is the amount of material required in the business it weight 10% since they are vital for the initial business operation and they entail the cost of labor, raw material as well as the equipments. Business permit. Prior to business operation, license to operate a business is important and it has been given a weight of 8% since this factor is vital for the business operation. Competitors Competitors are vital to the business separation since they establish the project sauces of failure depending on the magnitude of the rivalry. This factor has been given a weight of 15% Growth in domestic population and foreign This factor is considered important since it appraises the growth of the population as well as their requirement for the project. In this regards, the growth in domestic population has been allotted a weight of 8% Bank support Bank support is deem significant since they are the financiers of the business operation and thus it has been accorded a weight of 20% Expansion of business and companies and demand This factor is important since it has going to be employed to appraise the feasibility of the business in terms of the going concern assumption and therefore this factor is bee allotted the weight of 17 Features offered by the project This factor will a[praise the Impact of the project and its importance in producing 3000 concrete in terms of quality and time and thus the factor has been given a weight of 7% Table of Rating Index Process Factor Weightage Rating Score VG (5) G (4) A(3) P(2) VP (1) Profitability 25%  (25/100*4)= 1 Availability of resources 10%  (10/100*5)= 0.5 Obtaining various licenses 8%  (8/100*4)= 0.32 Competitors 15%  (15/100*1)= 0.15 Growth in population 8%  (8/100*5)= 0.4 Bank Support 20%  (20/100*4)= 0.8 Business expansion & demand 17%  (17/100*3)= 0.51 Features offered by the buildings 7%  (7/100*4)= 0.28 TOTAL 3.96 Profitability The factor is given the weight of 25% as well as ranked as good due to the fact that the project proposal is anticipated to generate more profits into the construction company. Availability of resources The resource depicts the contractors who are accountable for the construction process, the building equipment, initial capital requirement, the labor force as well as the equipment. This factor has been given a weight of 10% as well as ranked very good. Since the supply of material for the construction of concrete depict the enough source of supply in Muscat due to broadness of the construction company. Obtaining the various licenses The factor has been given a weight of 8% as well as ranked as good since the potential proposals portrait a precise working plan.The government offer stakeholders a broad opportunities to encourage investment such as tax exemption. Capital allowances as well as simply process of licensing. The following ought to be obtain before the construction company commence The safety of the construction company in terms of environmental compliance Approval of the proposed building from the ministry of housing The drawing approval from the Nizwa local council. Competitors Competition has been given weighted 15% as well as ranked very poor since their maximum completion and supply of concrete product in the market .There is a continuing project to be as competitors for the stakeholders. The maximum supply and competition reduces the amount of revenue and supply of the product in the market. Expansion of business and demand The factor has been given a rating of 17% as well as ranked average since the growth activity in Nizwa is very fast which demand for more supply of concrete product. The constant growth rate in the rate of employment as well as the growing business environment is anticipated to create extra enhancement in the construction company. In this regards, there is an opportunities for the stakeholders to construct best residential and commercial building using the concrete manufactured by the company. Bank support The bank support has been given a weight of 20% and ranked as good due to the fact that there are numerous financial institutions may provide financial support by way of asset financing in order to boost the project success. B Market Analysis for the project Demand and Competitors of concrete Demand: There is current demand in the concrete for the construction company and at present the company is committed towards producing 3000 concrete to meet its target customers. The growth in real estate and commercial building has been pushing the concrete manufacturing company to produce more of the concrete in order to meet the demand of the product in the market due to high economic growth as well as increased growing population Competitors: There exist numerous supply of the concrete product in the market and this act as threat to the business operation due to the magnitude of the competition. The impact of the competition will impact the supply of the completed product as well as the amount of work in progress Alternative to curb the effect of competitor The company can take advantage of tax advantage arising from capital gains and allowances in order to minimize their tax burden and I improve on the profit to be realized from the project. The company might as well diversify its investment project in order to reduce the investment risk associated with the manufacture of concrete due to high demand of the same product in market. The issue affecting the business operations them regultion by the government and the local building that provides tight rules to be followed in the construction industry that must be upheld at all times. C. Location Analysis To consider the project success, it is considered significant to appraise the business environment in which the construction company will be located. This entails appraising the cost of construction. The cost of the land, the impact of the population growth as well as the magnitude of the rivalry between companies manufacturing the same concrete in the location. Location rating index 1. Muscat Factor Weight age Rating Score VG (5) G (4) A(3) P(2) VP (1) Construction cost 20%  (20/100*3)=0.6 Competitors 25%  (25/100*3)=0.75 Demand 30%  (30/100*3)=0.9 Growth of population 25%  (25/100*4)=0.1 TOTAL 3.25 Construction cost Construction cost has been allotted a weight of 20% and ranked average due to its strategic location which implies that the cost of the construction is very expensive. (200/Sq.m) Competitors Competition has been given a weight of 25% and ranked good since there is less competitors on the construction company in the area as well as there is the growth in real estate and commercial bank in the area. Demand Demand has been allotted a weight of 30% and ranked good since, there is high demand for the concrete product in the market due to growth in real estate and the commercial building which pushes the demand for the concrete product in the market. Growth of population The growing population has given a weight of 25% and rate good due to growing size in population. The impact of the growing population is that it will impact the demand for more real estate which in turn implies that the demand for concrete product will improve as well. 2. Sohar Location rating process Factor Weight age Rating Score VG (5) G (4) A(3) P(2) VP (1) Construction cost 15%  (15/100*4)=0.6 Land cost 20%  (20/100*3)=0.6 Competitors 25%  (25/100*5)=1.25 Demand 27%  (27/100*4)=1.08 Growth of population 29%  (29/100*4)=1.16 TOTAL 4.69 Construction cost This factor is given the weight of 15% and ranked good since there the ideal demand for the concrete product in sohar Construction cost = (5 × 600 × 105) = 315,000 OR Where: 5 is the number of floor Area for the building under construction 600 depict the floor area. 5% stand for the rate per square meter. Land cost The cost of the land is important in sohar and has been given a weight of 20% as well as rated as Average. Which implies that the average price of the land per square meter in Sohar is roughly 180 RO which is 35*25=874 which is further calculated as? Land cost = 875 sqm × 180 RO = 157500 RO Competitors Competition in Sohar as been given a weight of 25% and rated very good since many construction in Sohar are residential with small rivalry with numerous unused lands in the location that may be employed in constructing commercial buildings. Demand This factor has a weight of 27% and ranked as good since the demand for the concrete product in Sohar. This is due to numerous corporations shifting to Sohar in order to take advantage of the growing population and the economy in the area. Growth of population Population growth in Sohar has been given a weight of 29% and rank as good since, in Sohar the population is growing hence the demand for the residential property. In this regards, it implies that the demand for the concrete product will as well be high. 3. Nizwa Location rating process Factor Weightage Rating Score VG (5) G (4) A(3) P(2) VP (1) Construction cost 26%  (26/100*5)=1.3 Land cost 20%  (20/100*4)=0.8 Competitors 18%  (18/100*4)=0.72 Demand 24%  (24/100*5)=1.2 Growth of population 25%  (25/100*4)= 1 TOTAL 5.02 Construction cost The cost of construction has been given a rating of 26% and rated as very good which implies that construction cost assessment in Nizwa is roughly 180 RO per square meter. The workings below speculate the monthly construction cost associated with the new building. Construction cost = (6 × 600 × 180) = 648,000 OR Where: 6 depict the number of building floors. 600 are the floor is of the building. 10 is the square meter of the building. Land cost Land has been given a weight of 20% and as well ranked as well. The average price per square meter of the land in Nizwa is around 200 OMR with land are of 1225 Sqm which implies that the cost of the land is 1225*200} =245000 Ro Competitors The level of competitor is weighted 18% and ranked good due to small competition in Nizwa. Demand The demand is given a weight of 24% and ranked as good due to high demand with growing population in Nizwa are. This is an indication that the demand for the concrete will as well improve. Growth of population The growth in population is weighted as 25% and ranked good since the population of Nizwa is growing each year. Conclusion: Following the comprehensive Assessment of the location, it can be considered that Nizwa is relevant due to highest rating of 5.02 as well as satisfaction of the entire factors. D. Major developmental capital and operational cost The project entails the pre-construction cost, the initial cost of construction as well as the cost of operation. 1. Pre-construction cost Item Cost 1. Land; Nizwa Cost per sqm cost is roughly 200 with area is capacity of (35*35) 1225 sqm. { 1225 sqm × 200 RO} = 245000 RO 2. Building Design 11,500 RO 3. Licenses/ permit 4500 RO 4. Site establishment 8500 RO 5. Site services. 4000 RO 2. Construction cost (per year) Item Cost 1. Construction of building including materials 850,000 RO 2. Equipment cost 75,000 3. Salaries 454,000 RO 4. Water bill 6500 RO 5. Electricity bill 3000 RO 6. Retention cost 155,000 RO 7. Materials cost 425,000 RO 8. Total cost 2,242,000 2. Operation cost {Per year] Item Cost 1. Cleaning cost Cleaning cost per head 250 RO Number of cleaners ;3 The building floors; 5 floors. Total cost = 250 × 15 × 5 = 18750 RO 2. Maintenance cost of building = 25,000 × 3/100 = 750 RO Per annum 750 RO × 12 (months) = 9000 RO 3. Water supply 6,500 RO 4. Electricity bills 25500 RO 5. Total operational cost 59750 Working for the net income: Construction Income = {800 × 5 × 100} =400, .000*12} =4,800,000 RO per annum Workings for the premium bank: Bank loan = 60/100×2,242, 000 =1,345,200 RO A A= {1345000*0.04(1.045^5)}/ {(1.045^5)-1] = A={67044.59/0.2462}=272337.6 Where: I = 4% - interest amount P = (bank loan) = 1345,000 RO n = number of years to pay the bank = 5 years. Amount to be paid for the loan finance will be 272337.6 RO Working for the revenue: Revenue = income – bank loan – operation cost = {4,800,000 - 272337.6- 48,300-59750} =4,467,912 RO Building ten years lifecycle Years % Revenue Expense 0 - - 2242,000 1 0 4800,000 RO (bank loan + operation cost) = (272337.6+ 48,300) = 320637.6 RO 2 1% (4800000 × 0.01) + 4800000} = 48484000 RO = 272337.6 + (48300 x 0.01)+ 48300 = 321120.6 RO 3 1% (48484000 × 0.01) + 48484000} = 4896480 RO 272337.6 + (48300 x 0.01)+ 48300 = 321120.6 RO 4 1.5% (4896489 × 0.015) + 4896480 = 496927.2 RO 272337.6 + (48300 x 0.01)+ 48300 = 321120.6 RO 5 2% (4969927 × 0.02) + 4969927 = 5069326 RO = 269,552.53 + (48300 x 0.02)+ 48300 = 318818.53 RO 6 2% (4969927 × 0.02) + 4969927 = 5069320 RO = (48300 x 0.02)+ 48300 = 49266 RO 7 3% (5069320 × 0.03) + 5069320 = 5221400 RO = (48300 x 0.03)+ 48300 = 49749 RO 8 3% (5221400 × 0.03) + 5221400 =5,378,042 RO = (48300 x 0.03)+ 48300 = 49749 RO 9 3% (5,378,042 × 0.03) + 5,378,042 = 5,539,384 RO = (48300 x 0.03)+ 48300 = 49749 RO 10 3% (5,539,384 × 0.03) + 5,539,384 = 5,705,565.6 RO = (48300 x 0.03)+ 48300 = 49749 RO Lifecycle cash flow diagram Business Structural Ownership of Company The company is registered in a construction company. SAOG is a standard and governed corporation. The society Anonyms Omanis General is a general joint stock corporation that implies a shift of shares is subject to the anticipatory right of other stakeholders. An SAOG is an open security corporation which means the security is available for the secondary market security. Nevertheless the liability of the business loans declines in the security market. For the business to be registered in SAOG, the least requirement in terms of capital structure is 2242,000 that are mandatory for the project. The least value of security accessible to the shareholders is an at least 40%. Moreover, the business ownership depict numerous strength and weakness for SAOG.It implies therefore that shareholders must have at least 30% interest in the business with a maximum of 60% of the capital while 10% for the public subscription. The following are the traits of the public and private stock corporation. Number of members: A private corporation ought to have utmost two people while with public corporation it must have at least seven people. Legal entity: Corporation has independent legal entity which is different and separate from its members which implies therefore it can sue or be sued on its behalf as well as it enter into a binding contract. Legal personality: The corporations are a legal person created under law under the legal process. This implies that one can enter into a contract, sue and be sued as well as own a private property. Equity capital: The company can raise equity capital through raising shares. Members can share who have transferred to any other person corporation devoid permission from the corporation. Common seal. The corporation can act ultra-vires. Which implies that it cannot act beyond the powers it is bestowed by the company law. Reference list Difference Between Net, Difference between SAOC and SAOG, 2015, available from: accessed on 25 February 2015. Knoji Consumer Knowledge, Important Features of a Joint Stock Company, 2014, available from: accessed on 7 May 2015. Oxford Business Group, (2015) Commercial breaks: An historic lack of office space is coming up against rising demand, available from: . Accessed on 3 May 2015 Oxford Business Group, (2015) Down to business: Free zones attract commercial real estate investors, available from:, Accessed on 4/5/2015 SirajBhavnagarwalla, (2015) Optimistic outlook for Oman’s Construction sector, available from:. Accessed on 6 May 2015 Read More