36. ABC Development
Development Finance
You are employed by ABC Developments and have asked to investigate a small housing project in Falkirk. Specifically the project out-turn is to be compared with the feasibility study. The feasibility study is included in the Case Study in Teaching Paper Number Two: ABC Developments. This includes a developers budget, projected cash flow and estimated borrowing. The borrowing includes both that loan by the finance company who are part financing the project and from the overdraft facilities from the developers own bank.
The out-turn for the project is subject to things going wrong. This includes:
1. A delay in the granting of planning caused the project to start late. This lead to an increase in the cost of construction and an increase in the period of the loan for the purchase of the land. It also resulted in houses being completed outside the anticipated selling window.
2. Interest rates increased from those included in the feasibility study. This affected both the loans to cover the cost of purchasing land and construction costs from the finance company and the cost of overdraft facilities.
3. The sales rate of houses was much slow than anticipated and the prices had to be trimmed back as the marketability of houses of that type in the location had been over estimated.
Consult the sheet to be posted on Blackboard to identify the delay in grant of planning permission, the increase in interest charges on the loan and on the overdraft, Also you should read off the expected speed of sales. The figures taken will be randomly generated and should be taken from the row corresponding to the last two digits on your registration number. Also make the adjustments to the Banks overdraft rate and the revised loan facilities Use the information to produce a revised cash flow schedule and an updated developers budget.Compute the revised outcome in terms of profit or loss. Identify the factors responsible for the change in the above giving the contribution of each.Outline potential changes that could be introduced to the feasibility studies for the company to avoid giving a misleading view and taking on unviable projects.