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Research · September 2018

DOI: 10.13140/RG.2.2.11680.23041


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3 authors, including:

Sada Abd Alkhaliq Alyasri Amer Albdiri

University of Al-Qadisiyah University of Al-Qadisiyah


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International Journal of Civil Engineering and Technology (IJCIET)
Volume 9, Issue 9, September 2018, pp. 63–72, Article ID: IJCIET_09_09_009
Available online at
ISSN Print: 0976-6308 and ISSN Online: 0976-6316

©IAEME Publication Scopus Indexed


S.A. Hasan
Civil Engineering Department,
College of Engineering, University of Al-Qadisiyah Al-Diwaniyah, Iraq

A.D. Albdiri
Civil Engineering Department
College of Engineering, University of Al-Qadisiyah Al-Diwaniyah, Iraq

A.H. Mohsen
Civil Engineering Department
College of Engineering, University of Al-Mustansiriyah, Baghdad, Iraq

A feasibility study was conducted to evaluate investment opportunities for
establishing a university hospital of 50 beds capacity. The hospital is intended for
providing healthcare services and teaching purposes. The healthcare services focus
on advanced (specialized) surgeries. The investment opportunity is based on the
concept; Build, Operate, and Transfer (B.O.T). Net present value, recovery period,
and internal rate of return were used for the financial analysis and profitability of the
hospital project. Results show that internal return rate (IRR) of (10.6%) and recovery
period of (6) years are achievable. The project is considered economically feasible.
Key words: feasibility study, B.O.T, Investment, Economic analysis, University
Cite this Article: S.A. Hasan, A.D. Albdiri and A.H. Mohsen, Feasibility Study and
Economic Assessment for Al-Qadisiyah University Hospital of Specialized Surgeries.
International Journal of Civil Engineering and Technology, 9(9), 2018, pp. 63-72.

The University of Al-Qadisiyah has realized the ultimate needs of the population of the Al-
Diwaniyah province for healthcare, and its role to meet these needs through establishing a
university hospital to provide both the public healthcare and the teaching purposes. Unmet
health needs of populations has been recognized by the World Health Organization (WHO) 63
Feasibility Study and Economic Assessment for Al-Qadisiyah University Hospital of Specialized Surgeries

due to critical funding gap, as only 30.4% of the required funding was received in the year
2017[1]. Al-Diwaniyah province is not far from this poor health situation. Health facilities are
still losing essential health staff due the cumulative and recent spikes in departures to Europe
[2], and the WHO continues to find many hospitals throughout Iraq in a poor state of repair
[3]. This has called for a responsible response from the university of Al-Qadisiyah, and a
proposal to utilize available resources to tackle the enormous health challenges in the
province of Al-Diwaniyah through a new strategy for investing in health [4] was evaluated.
An area of 2500 m2 belongs to the university of Al-Qadisiyah and located in an emerging
commercial and residential area was chosen to construct and operate a 50 beds hospital.
It was suggested to adopt the B.O.T model as an investment approach and a detailed
feasibility study was carried out to demonstrate the profitability of the proposed hospital. The
proposed economic assessment for the B.O.T approach has shown that 10.6% IRR and 6
years recovery period are achievable. This certainly encourages investors to invest in health
sector and the university of Al-Qadisiyah will benefit of the establishment of the proposed

The hospital consists of 11 surgical units (ENT surgery, Chest and blood vessels surgery,
Ophthalmology surgery, Kidney surgery, orthopedic surgery, Face and Jaw surgery,
Neurological surgery, Endoscopy tract surgery, Toxicology unit, Radiology department,
Intensive care unit). The project is a 4-stories building of 1725 m2 each, located in the district
of UM Al-Khail at (4/4175) area number as shown in Figure (1). The total available area for
the project is 2500 m2. Out of the total area, 775 m2 is available for landscaping and service

Figure 1 Project site

The project has been announced by the university of Al-Qadisiyah for investment to meet
the need of the university for a teaching hospital and to participate in compensating the 64
S.A. Hasan, A.D. Albdiri and A.H. Mohsen

shortage in the specialized surgery services to the people of Al-Diwaniyah. The

recommended model of investment is the B.O.T model, in which, the university offers the
land and medical consultation, while the investor is responsible for the construction, medical
equipment, operational costs, and running services. Both partners (the university and investor)
benefit of the hospital services. The partnership is governed by the investment law number
(13/2006) and related regulations.


The BOT model consists of the following contracts and agreements; [5], [6].
1. Concessionaire contract.
2. Loan Agreement.
3. Shareholder Agreement and Shareholding Agreement.
4. Construction Agreement.
5. Supply Agreement.
6. Off-take Agreement.
7. Operation and Maintenance (O&M) Agreement.
The BOT model was successfully applied in many countries as shown in Table (1).

Table 1 BOT investment successful experiences for the period (1984-1995) [7], [8].
Cost (million
Country Project B.O.T model
France -Britain Channel Tunnel B.O.T 55 year 19000
Taiwan Highway Traffic System / Taipei B.O.T 17000
Malaysia Highway Road B.O.T30 year 3400
Mexico Coal power plant B.O.T 3000
Thailand Metro Suspension System B.O.T 30 year 2981
Japan Kansai International Airport B.O.T 15000
Argentina Water and sewage services for the B.O.T 30 year 4000
city of Buenos Aires
Thailand Asia Network Communications B.O.T 25 year 4000
China Nuclear Power Plant B.O.T 3700

The methodology of research adopted for this work covers the following stages;
Stage I: conducting a technical feasibility and Marketing Studies.
Stage II: conducting a strategic analysis (SWOT analysis).
Stage III: conducting economic assessment and feasibility studies.
Stage IV: conclusions

SWOT analysis was carried out to determine the impact of strength, weakness, opportunity
and threats on the profitability of the project. [9]
Strengths: The following points were considered as the strengths of the project;
 Rare competitive projects within the area of the project.
 Providing advanced surgery services.
 Excellent location. 65
Feasibility Study and Economic Assessment for Al-Qadisiyah University Hospital of Specialized Surgeries

 Exempting medical equipment from income tax.

 Medical staff availability.
 New investment experience in the Al-Diwaniyah province.
 Contributing to unemployment reduction.
 Providing teaching opportunities for the students of the college of medicine/ University of Al-
 Providing medical services for the nearby governorates.
Threats: No threats


Fixed costs: fixed costs can be divided into capital and annual fixed costs.

The cost of capital

Table (3) summarizes the capital costs of the project.

Table 3 Summary of capital cost of project

No Item Cost ($)
1 Land Available
2 Buildings and utilities installations
ground floor (1725) m2 1,725,000
1st floor (1725) m2 1,380,000
2ed floor (1725) m2 1,380,000
3ed floor (1725) m2 1,380,000
Service facilities and gardens 98,000
3 Cost of medical equipment 4,000,000
4 Constituent costs 37,000
Total of capital fixed cost 1000000000
Annual fixed cost: depreciation, maintenance and repair represent the constant annual costs
as detailed in Table 4.

Table 4 estimated annual fixed cost

(1) Item (2) Cost $ (3) Rate of Dep. ($) (4) Annual Annual
Dep. percentage Main. ($)
of Main.
Buildings 5,865,000 3% 175950 60% 10557
(Machines 4,000,000 10% 400000 50% 200000
and medical
setting cost
Sum. 575950 210557
Total sum $ 797035
Variable costs: variable costs included staff salaries and annual costs.
Staff salaries: The estimated salaries of the staff are presented in Table (5). 66
S.A. Hasan, A.D. Albdiri and A.H. Mohsen

Table 5 Salaries of the staff

No. service type No. Monthly wages Annual wages
($)/one ($)
1 hospital director 1 2250 27000
2 Resident doctor 8 1800 172800
3 Radiologist and sonar 2 1800 43200
4 Doctor of Laboratory Analyst 1 1800 21600
5 Nurse 12 800 115200
6 medical assistant 6 600 43200
7 Accountant 3 700 25200
8 Service workers 10 300 36000
9 administrative employee 4 700 33600
10 Generator operator 1 375 4500
11 Electric and mechanical 3 500 18000
Total sum. 51 540300

Annual variable cost: Table (6) details the annual variable costs.

Table 6 Annual variable cost

Item Cost ($)
administration costs 540300
A specialist Surgeon doctor costs 3000000
Advisory and consultation costs 67500
Electricity fees 5000
Water fees 2500
Running cost of the generator 11000
Cost of sanitary materials and supplies 200000
Total annual variable costs 3826300
The variable costs are assumed to increase by 3% every five years. The inflation rate is
assumed to be 2% as it has not exceeded 2% since 2012 .Table (7) shows the distribution of
fixed and variable project costs over the life of the investment project.

Table 7 distribution of fixed and variable costs

Fixed costs Variable Total cost Current value Current value
$ costs $ $ of costs at 10% of costs at 50%
discount rate discount rate
0 2018 500000 - 5000000 5000000 5000000
1 2019 500000 - 5000000 4545454.545 3333333.333
2 2020 575950 3826300 4402250 3638223.14 1956555.556
3 2021 575950 3826300 4402250 3307475.582 1304370.37
4 2022 575950 3826300 4402250 3006795.984 869580.2469
5 2023 575950 3826300 4402250 2733450.894 579720.1646
6 2024 575950 3826300 4402250 2484955.359 386480.1097
7 2025 797035 3941089 4738124 2431406.796 277311.3269
8 2026 797035 3941089 4738124 2210369.814 184874.218
9 2027 797035 3941089 4738124 2009427.104 123249.4786
10 2028 797035 3941089 4738124 1826751.913 82166.31909
12 2029 797035 3941089 4738124 1509712.325 36518.36404 67
Feasibility Study and Economic Assessment for Al-Qadisiyah University Hospital of Specialized Surgeries

Admission annual revenue = $ 6,000,000
Outpatient revenues = $ 90,000
Emergency services revenues = $ 60,000
Total annual revenue = $ 6.15 million
Table (8) details the project revenue analysis, assuming 5% inflation rate every five years.

Table 8 Project revenue analysis

Total cost $
Year Revenue $ Current value of returns at
Current value of $ at
10% discount rate $
50% discount rate
0 2018 0 0 0
1 2019 0 0 0
2 2020 6150000 5082644.628 2733333.333
3 2021 6150000 4620586.026 1822222.222
4 2022 6150000 4200532.75 1214814.815
5 2023 6150000 3818666.137 809876.5432
6 2024 6150000 3471514.67 539917.6955
7 2025 6457500 3313718.548 377942.3868
8 2026 6457500 3012471.408 251961.5912
9 2027 6457500 2738610.371 167974.3941
10 2028 6457500 2489645.791 111982.9294
12 2029 6457500 2057558.505 49770.19086


7.1. Net Present Value (NPV)
The net present value (NPV) is defined as the sum of the present value (PVs) of incoming and
outgoing cash flows over a period of time [10]. Based on the current rate of interest, adopted
by the Iraqi banks, the present value of the costs and revenues until the target year were
calculated using equation (1). [10]

∑ ……… (1)

At a rate of 10%, the net present value of the invested money in this project turned to be
positive as shown in Table (9). As NPV is positive, the project is economically feasible.

Table 9 Comparison of discounted costs and revenues

Discounted Discounted Discount

NPV ($)
Cost($) Returns ($) rate
101925.378 34704023.46 34805948.83 10%
-6054363.386 14134159.49 8079796.102 50% 68
S.A. Hasan, A.D. Albdiri and A.H. Mohsen

7.2. Internal Rate of Return (IRR)

The discount rate, which is often used in capital budgeting, makes the net present value of all
cash flows from a particular project equal to zero. [10]
Table (9) shows the difference between the net discounted revenue and the net discounted
cost of the same discount rate through which the net present value and the discount interest
rate can be calculated. From the adoption of different discount rates, the internal rate of return
can be calculated by interpolated. Internal Rate of Return (IRR) was estimated to
be10.6%.Table (10) shows the annual Profit of the project.

Table 10 Annual profit

Total Annual Annual Annual
Costs $ Revenue $ Profit $
0 2018 5000000 0 -5000000
1 2019 5000000 0 -5000000
2 2020 4402250 6150000 1747750
3 2021 4402250 6150000 1747750
4 2022 4402250 6150000 1747750
5 2023 4402250 6150000 1747750
6 2024 4402250 6150000 1747750
7 2025 4738124 6457500 1719376
8 2026 4738124 6457500 1719376
9 2027 4738124 6457500 1719376

7.3. Capital Recovery Period

The internal rate of return of investment is 10.6%, on which profits are measured.
The period of capital recovery was calculated using equation (2). [11].
Recovery period = Investment cost of the project + (investment cost × minimum required
rate of return on investment) ÷ Net annual cash flows (annual profit) (2)
Since the total cost of the project is $ 10,000,000, the annual profit during the first five
years is $ 1747750.The original refund period of the investment = 6 years from the start of the
operation. This is after adding the additional amount that represents the minimum return on
investment that the project accepts to overcome the problem of ignoring cash flows after the
redemption period.

Figure 2 Break- even point diagram 69
Feasibility Study and Economic Assessment for Al-Qadisiyah University Hospital of Specialized Surgeries

Consideration that the project is sensitive to the increase in variable income by a certain
percentage as the internal rate of return increases in this case, the amount invested in less than
6 years from the start of operation, which is not far from the investor's perspective. Figure (2)
explains the break –even point, in which, costs and revenues are equal and the profits of the
project are taken beyond it.

7.4. Evaluation of Benefit Cost Ratio B/C

Benefit Cost Ratio `is defined as present value of net positive cash flow divided by net
negative cash flow at discounted i. If B/C ≥ 1, Alternative is economically feasible [12] .as per
equation (3) [13]:

… (3)

B: benefits of the project;
I: initial capital investment;
O&M: operating and maintenance costs.
Table 11 shows calculation for B/C ratio.

Table 11 Shows the calculation for B/C ratio

PV of net positive cash flow PV of net negative cash flow B/C
34805948.83 34704023.46 1.003

7.5. Sensitivity Analysis

Sensitivity analysis allows for some data and information on key variables and the extent of
their respective contribution degree of risk [14]. The four most important factors that affect
are the discount rate, the construction cost, the operation and maintenance Cost, and the total
benefit value.
Revenue is estimated as little as possible, so the increase in revenue leads to an increase in
the present value and the benefit-to-cost ratio. This is in the interests of the project. The lack
of certainty in determining the costs of increase or decrease also affects the feasibility of the
Table 4 shows the percentages of increase and decrease in cost and their impact on the
feasibility factors of the project
The decision is sensitive to the benefits. When the benefits increase, the choice becomes
more feasible, but when the benefits decrease, B/C ratio becomes less than unity
The purpose of this analysis is to observe if a change in any of these factors may cause the
project unfavorable or be favorable. Since the assumptions and estimates have a wide range of
uncertainty, the change in the cost will range from -5% to +5% of the originally estimated
 With discount rate, changing from 8% to 10.5%, the PWV varies from 1103193.702 $ to
10361.03734$ and B/C ratio varies from 1.03 to 1 but when discount rate must not be
increase than 10.6% , the project becomes less feasible.
 When the revenue vary - 10% to +10%, PWV varies from -3378669.505$ to 3582520.261$
and B/C ratio varies from 0.9 to 1.21. So the project is sensitive to the revenue. 70
S.A. Hasan, A.D. Albdiri and A.H. Mohsen

 With the construction cost changing from -10% to +10%, the PWV varies from 8788289.014
to 8597379.923 and B/C ratio varies from 1.33 to1.328, the project stay feasible.
Therefore, when the revenue increase, the project becomes more feasible. It is only when
the total annual revenue reach -10% of their base value (decrease) that the B/C ratio for the
project becomes less than unity. Hence, it can be concluded that the project is feasible as long
as its associated benefits are considerably high. The decision is sensitive to the revenue.

The Build, Operate and Transfer (B.O.T) model has shown a considerable participation in
mitigating the state's financial crises and can be adopted to raise the level of health services.
The results confirm that the use (B.O.T) investment system for the construction of the 50 beds
hospital is feasible. The new hospital can improve the quality of the healthcare in the city of
Considering the project is sensitive to the inflation rate, the revenue is expected to rise 5%
or more per five years. At a 10% discount rate, the net present value of future cash flows will
be positive. This shows that the project is economically feasible. As the expected IRR is 10.6
%, there will be encouragement for the establishment of the project. It was also determined
that from the calculation of the capital recovery period, the payback period is 6 years. The
project is feasible as long as its associated benefits are considerably high. The decision is
sensitive to the revenue.





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[10] Blank L., T. A. Engineering Economy, Seventh Edition. McGraw Hill. New York, USA:
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