PROJECT OF INVESTMENT ECONOMICS PROJECT INVESTMENT ANALYSIS “TIMES CITY

HANOI UNIVERSITY OF CIVIL ENGINEERING Department of Construction Economics and Management - - PROJECT OF INVESTMENT ECONOMICS PROJECT INVESTMENT ANALYSIS “TIMES CITY" Student’s name : Trần Minh Giang Student’s ID : 56663 Class : 63KTE Lecturer : Nguyễn Thị Nha Trang INTRODUCTION I The role of construction investment in the national economy Construction investment is a current capitalless activity to build assets that are construction works, then exploit and operate the facility, and these assets are profitable or satisfy certain demands for those who invest in a certain time in the future Construction investment is seen as investment projects for material objects, but this material object is construction works Construction investment plays an important role which are shown in the following characteristics: Investment and construction activities are considered as a step ahead activity to directly create facilities (conventions called assets) for the entire national economic sectors After that, the national economic then exploited the construction to create material wealth to satisfy the needs of the social community Create a new economic structure, make new production sectors appear Contributing to assigning social labor in a reasonable way, contributing to promoting economic growth and social development Through construction investment, it is possible to harmonize the relationships that arise in the economy and in society, such as the relationship between economic development and education, health and defense development; economic development between central and local; economic development in remote areas … For business activities, investment in technology innovation is activities related to survival, innovation and development of enterprises For our country in the transition period to socialism, construction investment plays an important role, accelerating the implementation of the industrialization and modernization process that the Party and State have proposed Specifically: Construction Investment is the main activity of building constructions and infrastructure for the purpose of developing construction industry, developing industries, economic sectors and social development Construction investment meets increasing demand in improving people's material and spiritual life, developing culture, embellishing the architecture of the nation and having an important impact on the environment Ecological Construction Investment contributes significantly to national security and defense works to protect national sovereignty and independence II The role of the project in investment and construction management Investment projects are established under current regulations of the State are grounds for submission to competent authorities for approval Once approved, the investment project is a basis for applying for a construction investment license and also for investors to consider the expected opportunity to achieve economic, social, environmental and calculated objectives its effectiveness The investment project also plays a particularly important role because through which the State can comprehensively control aspects such as financial efficiency, social efficiency as well as national security and defense Investment project is a system to implement and concretize ideas and opportunities to gradually transform proposed measures (technical, financial, economic and social) into reality Content prepared in the project is a basis for investors to consider the feasibility of the project Especially considering the financial efficiency and socio-economic efficiency from which to decide whether to invest or not? An investment project is established and approved as a legal basis It is also a specific plan for investors to implement and implement jobs as planned Approved targets in the project act as a control threshold for project implementation and management Through projects that funding agencies consider whether or not to spomsor for the project Investment project is the basis to compare the achieved results with the set objectives, thereby helping managers withdraw experience to implement projects better Through appraisal and approval in the project, the State can control the tasks: land use, location, resources, environment and other aspects for the project, III Contents of construction investment feasibility study report Part I: Explanation section of the project Necessity of investment: giving legal grounds, analyzing markets, analyzing natural conditions, society, investment objectives Select investment form and capacity scale • Proposing investment form, business model and capacity scale Select technical engineering plans Location Plans Compensation for land clearance and resettlement plans (if any) Production program and factors must meet Plan of management, exploitation and employment Options for architecture solution construction and environmental impact assessment Determine investment capital and capital source plans 10 Analyzing the investment effectiveness of the project • Analyzing financial efficiency • Analyzing socio-economic efficiency Part II: Basic design content of the project The basic design content of the project The contents of the basic design part of a project must show the principal design solution, ensuring the conditions to determinine the total investment capital and to implement subsequent designing steps, including explanations and drawings Explanation of basic design are presented separately or presented on the drawings to interpret the design with the following main contents: • Summary of design tasks; brief introduction of the connection of the project with the construction planning in the area; data on natural conditions, loads and impacts; List of applicable standards and standards • Technology explanation • Notes on construction Basic design drawings include: • Technology drawings showing technological lines with key technical parameters; • Construction drawings showing solutions on total ground, architecture, structure, technical systems and technical infrastructure of works with major sizes and volumes, landmarks, coordinates and high construction level; • Diagram of the fire and explosion prevention and control system Content of financial analysis and social-economic analysis: Financial analysis of investment projects is an analysis of the financial aspects based on the sense of direct benefits of investors Financial analysis of investment projects is one of the most important contents of a project Through financial analysis to help investors remove costs, how benefits can be obtained, how much benefit and cost comparisons can be made from which to decide whether to invest or not? In addition, financial analysis also helps investors have the necessary information & facilities to make investment decisions properly For the competent authorities of the State, the financial analysis is the basis for considering or approving or not approving the project, and is the basis for granting investment licenses When making and analyzing financial projects, the following projects should be carried out: a, Calculating and determining all input data used for analysis (mainly cash flow): • Determining the scale of investment capital for the project: Total investment • Revenue of the project operation years: The total value of goods and products produced by the project is sold or consumed in the years of operation • Determining the value of the project's asset salvage: abnormal income of the project • Determining the cost of production and business activities including the annual operating costs of the project, the depreciation cost of fixed assets, the initial payment of land rent, if any and the loan interest payment (dynamic expenses) • Determining fixed asset depreciation in operating years • Land lease and credit loan interest • Determining capital sources and capital structure for the project • Planning to mobilize and use capital for the project • Time used for project analysis and evaluation • Determine the interest rate used in the calculation: the acceptable minimum interest rate or the predetermined effective threshold b Conducting a profit-loss analysis for the project, determine the net present value (NPV) and interest rate of return (IRR) Assessment of net present value (NPV) 𝑛 In which: ∑ 𝑡=1 𝐵𝑡 − 𝐶𝑡 (1 + 𝑟)𝑡 - Bt : the cash inflow at the period t - Ct : the cash outflow at the period t - r : MARR Special cash flows: Where: SV (1 + 𝑟)𝑛 − + NPV = −𝐶𝑜 + (𝐵𝑡 − 𝐶𝑡 ) (1 + 𝑟)𝑛 𝑟(1 + 𝑟)𝑛 - Bt : the cash inflow at period t (t = – n) - Ct : the cash outflow at period t (t = – n) - C0 : the initial cost at period - SV : savage value at period n - r : MARR Invest if and only if NPV ≥ => the project is financially viable • If NPV = the economic profit = • If NPV > then economic profit > (excess profit ) • If NPV < then the project is not financially viable Assessment of interest rate of return (IRR) How to find IRR: solve the equation NPV = f(r) = • Use trial and error by hand • Choose the discount rate r1 so that NPV1>0 and NPV1 • Choose the discount rate r2 > r1 so that NPV2 the project is economically acceptable If IRR< r => the project is not economically acceptable c Analyzing and evaluating the financial effectiveness of the project through the system of effective evaluation criteria (static or dynamic) Financial performance of the project: ✓ Evaluate financial performance through the current value of revenue and expenditure ratio 𝑛 𝑁𝑃𝑉 = ∑ 𝑡=0 𝐵𝑡 − 𝐶𝑡 (1 + 𝑟)𝑡 In which: Bt: The t year benefit in cash flows depending on the common equity or equity point of view Ct: Cost of year t in cash outflows from the general capital point of view or from the equity point of view r: the minimum acceptable interest rate of the project depending on the common capital point of view or the equity point of view If NPV ≥ => the project is worth it If NPV < => the project is not worth it ✓ Evaluate financial performance through the future value of revenue and expenditure difference 𝑛 𝑁𝐹𝑉 = ∑(𝐵𝑡 − 𝐶𝑡 ) × ( + 𝑟)𝑛−1 If NFV ≥ => worthwhile project 𝑡= If NFV < => the project is not worth it ✓ Evaluate financial performance by the evening ratio of revenue and expenditure ratio If NAV ≥ => the project is worth it If NAV < => the project is not worth it ✓ Assess financial performance by internal rate of return 𝑛 𝑁𝑃𝑉 = ∑ 𝑡=0 𝐵𝑡 − 𝐶𝑡 =0 (1 + 𝐼𝑅𝑅)𝑡 If IRR ≥ r => worth the project If IRR < r => the project is not worth it ✓ Assess financial performance by revenue and expenditure ratio If BCR ≥ project is worthwhile; If BCR < the project is not worth it d Analyze and assess the financial safety for the project ✓ Analysis of capital safety Legal analysis of capital sources, prestige, financial capacity, legal status of capital sponsors The rationality of the project's capital structure between equity capital and borrowed capital ✓ Payback period analysis V: Investment cost Nhv: Source of payback at time t (including profit and depreciation) ✓ Break-even analysis Break-even revenue: FC: fixed cost of the project VC: variable cost of the project R: revenue of the project ✓ Breakeven output of the project P: selling price of product unit v: variable cost of unit of output ✓ Break-even activity level ✓ Payback period analysis Time to recover capital thanks to profit: To = V L Payback period thanks to profit and depreciation: Tk = V L+K ✓ Analysis of debt repayment ability According to the project's debt repayment criteria: K Nt = Bt At • Project sensitivity in case the investment cash flow increases to 5% The sensitivity of the effect (ΔH) was determined by the formula: ∆𝐻 = 𝐻𝑏𝑡 − 𝐻𝑔 𝐻𝑏𝑡 The smaller the ΔH, the smaller the sensitivity and the higher the safety Hbt: of the performance indicator under consideration (NPV, IRR…) is calculated under normal conditions as originally calculated Hg: the efficiency indicator under consideration (NPV, IRR, ) is calculated at an unfavorable condition compared to the initial calculation condition → Safety ∆𝐻 = 241.463,62 − 225.465,69 = 0,066 241.463,62 124 CHAPTER II: ANALYSIS OF SOCIO-ECONOMIC EFFICIENCY OF INVESTMENT PROJECTS Analyzing the socio-economic efficiency of the investment project (Invesment plans), assessing the project on the basis of the benefits of the entire national economy, society and community Socio-economic analysis to convince the community and State management agencies to permit the implementation of the project; analyze the impact of the project & measures to overcome the natural and social conditions of the locality and the project area Unlike financial analysis of Invesment plans, in economic and social analysis, we use economic prices (hidden prices) to review & evaluate the proposed targets (Economic price = Financial price & State price policy) We analyze the socio-economic efficiency of the investment project, which can be carried out by analyzing some simple indicators: Value added products created by the project: - The greater the value of added products, the more the project contributes to the national gross product, the greater the economic and social efficiency Base of determination: - Based on annual revenue - Based on the material input cost and the annual purchase service Content: - Determining material input costs and services purchased from outside for each year of operation The physical input costs and services purchased for each year of operation are summarized in the table 125 Table 73 Physical input cost and purchased services ( year 1-7 ) (Unit: Million VND) No Content Year of Operation Utility costs 2.381,18 2.381,18 2.521,25 2.521,25 Repair and maintenance costs 6.219,37 6.219,37 6.219,37 6.219,37 2.521,25 2.521,25 2.521,25 6.219,37 6.219,37 6.219,37 Depreciation of fixed 18.413,98 18.413,98 18.413,98 18.413,98 18.413,98 14.635,86 14.635,86 assets Other management 4.482,22 4.622,29 4.762,36 4.762,36 4.762,36 4.902,43 4.902,43 cost Total 31.496,75 31.636,82 31.916,96 31.916,96 31.916,96 28.278,91 28.278,91 126 Table 74 Physical input cost and purchased services ( year 8-15 ) (Unit: Million VND) No Content 2.381,18 2.381,18 10 2.521,25 Year of Operation 11 12 13 2.521,25 2.521,25 2.521,25 14 2.521,25 15 2.521,25 Utility costs Repair and 6.219,37 6.219,37 6.219,37 6.219,37 6.219,37 6.219,37 6.219,37 6.219,37 maintenance costs Depreciation of fixed 36.628,08 36.628,08 36.628,08 18.400,91 18.400,91 18.400,91 18.400,91 18.400,91 assets Other management 4.902,43 4.902,43 5.042,50 5.042,50 5.042,50 5.042,50 5.042,50 5.042,50 cost Total 50.131,06 50.131,06 50.411,20 32.184,03 32.184,03 32.184,03 32.184,03 32.184,03 Determine the value of increased products generated by the project: - Annual increase in product value generated by the project: GGT = R - CVH GGT: Product value increases every year R: Sales turn over year (Value of products made) CVH: Material input cost (Past labor product value) 20 - Product value of the project life:: G DA =  G t t =1 127 Table 75 Value of increased products generated by the project ( year 1-7 ) (Unit: Million VND) No Content Revenue Material input & outside services Year of Operation 98.048,63 105.052,11 112.055,58 112.055,58 112.055,58 119.059,05 119.059,05 31.496,75 31.636,82 31.916,96 31.916,96 31.916,96 28.278,91 28.278,91 Increasing product 66.551,88 73.415,29 value 80.138,62 80.138,62 80.138,62 90.780,14 90.780,14 Increasing product 66.551,88 139.967,17 220.105,79 value cumulatively 300.244,41 380.383,03 471.163,17 561.943,31 128 Table 76 Value of increased products generated by the project ( year 8-15) (Unit: Million VND) No Content Revenue Material input & outside services 10 Year of Operation 11 12 13 14 15 119.059,05 119.059,05 126.062,53 126.062,53 126.062,53 126.062,53 126.062,53 126.062,53 50.131,06 50.131,06 50.411,20 32.184,03 32.184,03 32.184,03 32.184,03 32.184,03 Increasing product 68.927,99 68.927,99 value 75.651,33 93.878,50 93.878,50 93.878,50 93.878,50 93.878,50 Increasing product 630.871,30 699.799,30 775.450,62 value cumulatively 869.329,12 963.207,62 1.057.086,11 1.150.964,61 1.244.843,11 129 Conclusion: + The added value of the project generated for the whole period of analysis is: 1.244.843,11 million VND + The average annual increase in product value is: GBQ = 82.989,54 million VND Judegement: The project has created a relatively large amount of product value, contributing greatly to the creation of the national national product Thus the project is economically effective The level of attracting laborers to work in the project: - The total number of employees attracted to annual work is: n = 177 people - The ratio between the number of employees working on the project and the project capital + Where: Number of employees attracted annually, n = 177 people VDA : Investment capital for the project; VDA = 442.625,48 million VND K= 177 442.625,48 = 0,00049 - So every million VND of the project's investment capital will create 0,00026 workplaces, the average level of labor attraction is relatively The project's contribution to the budget: - The greater this target, the higher the socio-economic efficiency The main budget remittances are taxes of all kinds and land rent in business - Based on the state tax law, the project's contributions to the state budget include: + Corporate income tax 130 + Excise tax: The excise tax is an indirect tax and usually evaluates the business license (license) of enterprises Since the enterprise has a registered capital of over VND 10 billion, each year, the enterprise must pay license tax to the state at VND million (According to Circular No 302/2016 / TT-BTC dated November 15, 2016 of the Ministry of Finance) + Value-added tax paid to the state: TGTGT = TGTGTR - TGTGTV TGTGTR: Value-added tax output = 8% Rental revenue of area TGTGTV: Value-added tax on input = 8% Water and electricity costs + 8% Repair and maintenance costs +8% Other management costs 131 Table 77 Taxes submitted to the government budget ( year 1-7) (Unit: Million VND) No Content I VAT output II Rental revenue of area 7.843,89 8.404,17 Year of Operation 8.964,45 8.964,45 8.964,45 9.524,72 9.524,72 98.048,63 105.052,11 112.055,58 112.055,58 112.055,58 119.059,05 119.059,05 VAT (8%) 7.843,89 8.404,17 8.964,45 8.964,45 8.964,45 9.524,72 9.524,72 VAT input 1.046,62 1.057,83 1.080,24 1.080,24 1.080,24 1.091,44 1.091,44 Other managemnt costs 4.482,22 4.622,29 4.762,36 4.762,36 4.762,36 4.902,43 4.902,43 VAT (8%) 358,58 369,78 380,99 380,99 380,99 392,19 392,19 Utility costs 2.381,18 2.381,18 2.521,25 2.521,25 2.521,25 2.521,25 2.521,25 VAT (8%) 190,49 190,49 201,70 201,70 201,70 201,70 201,70 Repair and maintenance costs 6.219,37 6.219,37 6.219,37 6.219,37 6.219,37 6.219,37 6.219,37 VAT (8%) 497,55 497,55 497,55 497,55 497,55 497,55 497,55 7.884,21 7.884,21 8.433,28 8.433,28 III VAT submitted to 6.797,27 the budget 7.346,34 7.884,21 IV Corporate income 6.409,47 tax 6.507,64 8.894,55 10.068,54 11.371,67 13.896,85 13.896,85 V Excise tax 3,00 3,00 3,00 3,00 3,00 3,00 3,00 Taxes submitted to 13.209,74 13.856,98 16.781,76 17.955,75 19.258,88 22.333,13 22.333,13 the budget 132 Table 78 Taxes submitted to the government budget ( year 8-15) (Unit: Million VND) No Content I VAT output II 9.524,72 10 Year of Operation 11 12 13 14 15 9.524,72 10.085,00 10.085,00 10.085,00 10.085,00 10.085,00 10.085,00 Rental revenue of 119.059,05 119.059,05 126.062,53 126.062,53 126.062,53 126.062,53 126.062,53 126.062,53 area VAT (8%) 9.524,72 9.524,72 10.085,00 10.085,00 10.085,00 10.085,00 10.085,00 10.085,00 VAT input 1.080,24 1.080,24 1.102,65 1.102,65 1.102,65 1.102,65 1.102,65 1.102,65 Other managemnt costs 4.902,43 4.902,43 5.042,50 5.042,50 5.042,50 5.042,50 5.042,50 5.042,50 VAT (8%) 392,19 392,19 403,40 403,40 403,40 403,40 403,40 403,40 Utility costs 2.381,18 2.381,18 2.521,25 2.521,25 2.521,25 2.521,25 2.521,25 2.521,25 VAT (8%) 190,49 190,49 201,70 201,70 201,70 201,70 201,70 201,70 Repair and maintenance costs 6.219,37 6.219,37 6.219,37 6.219,37 6.219,37 6.219,37 6.219,37 6.219,37 VAT (8%) 497,55 497,55 497,55 497,55 497,55 497,55 497,55 497,55 8.444,49 8.982,35 8.982,35 8.982,35 8.982,35 8.982,35 8.982,35 III VAT submitted to 8.444,49 the budget IV Corporate income 13.896,85 13.896,85 15.226,11 15.226,11 15.226,11 15.226,11 15.226,11 15.226,11 tax V Excise tax 3,00 3,00 3,00 3,00 3,00 3,00 3,00 3,00 Taxes submitted to 22.344,33 22.344,33 24.211,46 24.211,46 24.211,46 24.211,46 24.211,46 24.211,46 the budget 133 It can be seen from the table: - Total of budget remittances in the whole project life: 315.686,77 million VND - Total annual budget remittances: 21.045,78 million VND - The ratio of the payable to the average annual budget compared to the project capital is: 𝑵𝑺 𝑽𝑫𝑨 = 21.045,78 442.625,48 = 4,75 % Annual foreign currency income and project life: - The amount of revenue in foreign currency, paid by foreigner or domestic person in foreign currency Since there is no actual data, this part is unidentified Only accuracy when the project comes into operation Income of workers working in the project: - Based on the table: Estimated salary in operating years of the project we have: + Average annual income of an employee: TNBQN = Other benefits and effects: 13.248 177 = 74,85 (million VND) - The project approved, invested and put into use will contribute to changing the economic structure of the region in accordance with the orientation and objectives of socio-economic development of the whole economy in general and the region that in particular At the same time, when the project is put into operation, it will contribute to expanding and facilitating the development of cultural, social and foreign exchange activities 134 CONCLUSION AND RECOMMENDATIONS Conclusion - Conclusion of the feasibility of exploiting capacity and annual revenue: + Due to the economic strategy of the State On the other hand, the economy of our country has a fast and steady development speed, the construction area is the urban area and convenient traffic area Quang Ninh city is a big city in the country Therefore, the capacity to exploit capacity (it attracts tenants both at home and abroad), increase revenue, ensure relatively high profits - Conclusion of the feasibility of financial efficiency and financial safety: + For current index of revenue and expenditure NPV: Net cash flow increases with time, NPV is achieved:  General capital: NPV > => Worthwhile project  Owner's equity: NPV > => Worthwhile project + For the internal rate of return for IRR, the internal rate of gain is:  General capital: IRR = higher than the acceptable minimum interest rate r IRR> Set effective threshold => Project is worthwhile  Owner’s Equity: IRR is higher than the acceptable minimum interest rate r IRR> Set effective threshold => Project is worthwhile + Financial safety: The project has a fast payback period, average repayment capacity; revenue break-even and breakeven rate, revenue and operating level start to have debt as well as debt payment is quite low This proves that the project has relatively high financial security Conclusion of feasibility of socio-economic efficiency of the project: + The project creates a great value-added product for society; Contributing a significant portion to the State Budget through taxes, fees and charges of about VND million and an average of about VND million each year through taxes + Create jobs for 177 workers on duty for more than year; create jobs and income for many classes of people through providing services, buying and selling goods 135 + In addition, the project also contributes to structural change and regional economic development; increase and expand the cultural exchange relations between regions in the country as well as between Vietnam and international friends Forecast of factors affecting the effectiveness of the project: + Investment capital increases due to fluctuations in construction material prices + Room rent decreases compared to the price of the project under consideration + Operating costs due to inflation and inflation Recommendations - Because the project is worthwhile and highly feasible We kindly request Quang Ninh People's Committee, Department of Planning and Investment, Department of Finance and Pricing and related departments and agencies to evaluate and approve soon to facilitate and implement the project soon and deploy quickly & put into operation - The State as well as the City People's Committee, Department of Planning and Investment, Department of Finance and Prices, Banks, should have preferential policies on investment capital, taxes, prices, lending rates and time limits for loans for the project to be more effective & safe - Besides, the State should have solutions to limit financial fluctuations; avoid depreciation, inflation or rising inflation in the current and future markets At the same time, there must be a preferential regime to encourage domestic customers as well as foreign visitors to Vietnam Since then, Vietnam's tourism industry has developed, it is inevitable that investment in hotel business will achieve efficiency, increase exploitation capacity and high profitability; Revenues & contributions to the budget also increase, contributing to the economy's growing 136 Table 79 Summary economic and technical efficiency edicators (Unit: Million VND) No Target Unit Value I Indicators of use value and performance Contruction level Level IV Level of comfort and equipment Standard 3-star hotel Life expectancy Year 25 Land area m2 22.000 Number of houses for rent Houses 52 Area for rent to stay m2 30.784,50 II Financial edicator Million VND Million VND Million VND Million VND Million VND Million VND Investment capital Fisxed capital 10 Working capital 11 Rate of investment 12 Total net profit 13 Average annual net profit 14 Return on investment % 11,46% 15 Rate of return on fixed capital % 12,60% 16 Profit to turnover ratio % 42,94% 17 Minimum acceptable interest rate % 9,74% Value net present (NPV) of total investment point of view Net Present Value (NPV) of equity point of view Million VND Million VND IRR of total investment point of view % 18 19 20 442.625,48 402.479,45 9.084,86 8.120,00 760.783,58 50.718,91 241.463,62 179.799,28 20,34 137 21 22 23 IRR of equity point of view % Payback period through profit and depreciation Duration Return on time based on time value of money 19,95 years 10 month 11 days years 10 months 23 days Million VND Million VND 24 Revenue at design capacity 25 Break-even revenue 26 Break-even rate 27 Payback period years months days 28 Debt coverage ratio 4,81 % 1.771.878,86 907.782,59 51,65% III Socio-Economic efficiency edicators 29 30 31 32 Total value of pure produccts increases The value of pure products increases annually Number of employees in year of operation Average income of emplyees over year 33 Total contribution to the budget 34 Contribution to the average budget Million VND Million VND People Million VND Million VND Million VND 1.244.843,11 82.989,54 177 13.248,00 315.686,77 21.045,78 138 ... GXD - Estimated construction cost GTB - Equipment cost GMB - Estimated compensation: land clearance, residential resettlement GQL – Estimated project management cost GTV – Estimated consultant... Synthesis of investment capital does not include loan interest during construction and provision Table 17 : Total investment capital without interest during construction and provisioning period... preparation and bid evaluation costs for equipment supply and installation: GTVTB =NTVTB * GTB where: 33 - NTVTB: cost standards for compiling bid invitation documents and evaluating bids for