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The trust wants to build a facility for public welfare. Due to probable lack of resources the trust is willing to pay the developer in
kind i.e. through giving 50% of total land.
By making a preliminary survey of land prices of prime locations, it is estimated that the cost of Rs 8,000/- per sq m to Rs
12,000/- per sq m is prevalent. Therefore the given Rs 10,000/- per sq m rate be safely taken to calculate the land price. Thus
10,000 sq m of land will be of Rs 10,00,00,000/- worth .
Therefore in principle the trust is paying Rs 5,00,00,000/- in kind to the developer as development cost.
The objective for this complex:
• To utilize the space provided by charitable trust for a social & noble cause.
• To provide a better place for senior citizens.
• To make the society aware about the responsibly towards our elders.
With the said objective and given ‘A’ Class construction the 5 crore worth of construction would be around 5000 sq m
of built area.
Thus the charitable trust will get what they need through this arrangement.
Developer’s perspective:
This offer gives the developer an opportunity to make profit from the parcel of land given to him by the trust. The challenge here
is to generate capital and cash flow during the construction period, in which there will be no revenue generation.
Since the present capacity is restricted to Rs 60,00,000/-, the developer has to look into other sources to finance the project.
CALCULATING PROFIT:
Typical project of this nature would need 3 years to get finished. At the end of 3 years total of 11.81 crore would have been
spent. The profit on this amount would be 2.215 crores.
This profit will be generated from the sales of the housing units and will be generated continually throughout the 3 years.
SUMMARIZING:
Year 1:
Total capital available = 3.6 crore
Source of capital:
1. 3 crore long term capital,
2. 50L short term capital and [needed for the first quarter]
3. 10L his own investment. [needed immediately for starting of work]
Total requirement for expenditure = 2.3 crore
Requirement of revenue from sales = 0.0
Surplus will have to be invested in short term investments.
Year 2:
Total capital available = 1.3 crore
Source of capital:
1. 1.3 crore surplus from the “3 crore long term capital loan”,
2. From booking/sales of housing units.
Total requirement for expenditure = 6.54 crore
Payback of loan from bank and personal investment = 0.672 crore
Minimum Requirement of revenue from sales = 7.212 crore
Surplus will have to be invested in short term investments and used to pay back the short term loan raised from bank worth Rs
50L. The payback in this year would be 56L. Also developers own capital investment will be paid back, which will amount to
11.2 L.
Year 3:
Total capital available = 0.0
Source of capital:
1. From booking/sales of housing units.
Total requirement for expenditure = 2.97 crore
Payback of loan taken against property = 3.36 crore
Minimum Requirement of revenue from sales = 6.33 crore
This is minimum revenue will provide the breakeven for the project.
Remainder of 2.215 crores can be generated after this period also.