Engineering Economy Course Group Project Start Up Green Building.pdf

Green building is the idea of combining entertainment and an office.. In addition, the name green building also means a green environment with many trees around to create a cool and plea

VIETNAM NATIONAL UNIVERSITY — HOCHIMINH CITY INTERNATIONAL UNIVERSITY

SCHOOL OF INDUSTRIAL ENGINEERING & MANAGEMENT

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ENGINEERING ECONOMY COURSE

GROUP PROJECT

Lecturer: Nguyen Hoang Huy GROUP 6

Thành Phố Hồ Chí Minh, 5-2023

Contents

I INTRODUCTION

=1

Il METHODOLOGY

2.2 PLICe nh aAH đa

4 Comparison and Selection among alternatives . 0000

6.2 Taxes 2

6 Evaluating ProJects wIth the Benefii Cost Ralo Method Ill SOLUTION AND RECOMMENDATION

2.2 Maintenance and upgrading the workspace

2.3 FlexIbllles Q Q Q Q Q Q Q ng ng nà gà và v2

IV REFERENCES

I INTRODUCTION

1 What is Green Building?

Green building is the idea of combining entertainment and an office It allows us to change to a more comfortable working space but still ensures quiet and privacy In addition, the name green building also means a green environment with many trees around to create a cool and pleasant atmosphere for customers

2 Services

Our project combines commercial office leasing space with the construction of a development build- ing that provides workspace and leisure for everyone

3 Location

Ward 26, Binh Thanh District, Ho Chi Minh City

4, Target customers

Our building has 3 floors including:

The Ist and 3rd floors will respectively be the place we rental to commercial and entertainment purpose, so target customers are cosmetic shop owners, functional foods for Ist floor and restaurant or pub The 2nd floor is the floor we chose to implement a modern office project, so the main target audience will be office workers or groups who need to find a private, clean space for meetings and working

5 Competitors

Currently, there are many types of modern projects like the one we are doing In addition, cafes are also gradually introducing the workspace model Therefore, competition as well as difficulties in consider- ing and attracting customers is inevitable

6 Suppliers

Govi company - furniture

Il METHODOLOGY

1 Propose the evaluative system

In the current time, Ho Chi Minh City has many newly registered enterprises Mainly tenants target the East and South areas of the city The supply is dripping while the demand is high following the recovery

of the economy, forcing investors and office tenants to look for new solutions Therefore, we decided to build an office for rent located in Binh Thanh district Basically, the criteria that are of interest when renting are the security, the quality of building management, the surrounding environment such as schools, banks, hospitals, restaurants, etc It is indispensable whether the rental price is stable and suitable for the business

In addition, companies are focusing on adding diverse spaces such as one-person rooms for employees who need to be highly concentrated, long tables placed in flexible spaces to encourage cooperation and exchange between teams, space entertainment and health care

In this project we are looking at rental planning to reach break even point earlier and earn more profit

We make a 3-storey building with Ist and 3rd floors for entertainment and shopping We focus on the second floor with a modern office model for rent

¢ Pay attention to good interior and exterior decoration to increase rental value

* Note to install anti-theft cameras, increase peace of mind when choosing for tenants

* Pay attention to the rental contract: Clear deposit, problems after handover

* In addition, we also rent space for services: entertainment (dining), buying and selling cosmetics in a common building for the convenience of employees

2 Break-even analysis

2.1 Cost

Total costs include both fixed cost and variable cost in this project, where:

* Fixed costs are those that are unaffected by the output or other activities such as set-up, maintenance,

security, salaries costs, etc

* Variable costs are those that vary depending on the output or other activities such as cleaning, tree

fees, etc

NO

1

NO CONTENT UNIT Value (VND)

1 Set up cost 1 712,000,000

MONTHLY EXPENSE

5,000,000 3

1 Security 15,000,000

12,000,000 1

2 Staff 12,000,000

10,000,000 2

\3 Maintain per six month 20,000,000

3,000,000 1

4 Marketing 3,000,000

50,000,000

TTF

Tree fees/1m2 19,000 19,000

1

Cleaning 60,000 60,000 L2

Figure 1: Green Building Project

INITIAL INVESTMENT

CONTENT UNIT Value (VND)

Set up cost 1 805,000,000

MONTHLY EXPENSE UNIT COST UNIT Value (VND)

5,000,000 2

1 Security 10,000,000

6,000,000 3

2 Staff 18,000,000

30,000,000 1

3 Maintain per six month 30,000,000

10,000,000 1

4 Marketing 10,000,000

68,000,000 TTF

Variable Costs bedded Dispensation 19,000 19,000

1

Cleaning 60,000 60,000

2

Figure 2: Vision Building Project

2.2 Price

* Green Building:

Floor | % of used | Demand | Price

* Vision Building:

Floor | % of used | Demand Price

2.3 Break-even analysis

* Green Building:

Break-even demand: D = 50,000,000/450,000-(19,000+60,000)=134.8m?

Fixed Cost: Cy = 50,000,000 (VND/month)

Variable Cost: C, = C,*D = 55,300,000 (VND/month)

Total Cost: TC = Ce + C, = 50,000,000 + 55,300,000 = 105,300,000 (VND/month) Total Revenue (total sales): TR = 315,000,000 (VND/month)

Profit = Total Revenue — Total Cost = 315,000,000 — 105,300,000 = 209,700,000 (VND/month)

Break Even Chart

Figure 3: Green Building Project

* Vision Building:

Break even demand: D = 68,000,000/(300,000-(19,000+60,000))= 307.69m

Fixed Cost: Cy = 68,000,000 (VND/month)

Variable Cost: C, = C,*D = 55,300,000 (VND/month)

Total Cost: TC = Cy + C, = 68,000,000 + 55,300,000 = 123,300,000 (VND/month) Total Revenue (total sales): TR = 210,000,000 (VND/month)

Profit = Total Revenue — Total Cost = 210,000,000 — 123,300,000 =8 6,700,000 (VND/month)

Breakeven Analysis

Figure 4: Vision Building Project 2.4 Revenue, Profit, and Payback period

* Green Building:

Total revenue is mostly from renting which the price is paid by month is 450000 VND/m2 Based on Breakeven Graph, we will start gain profit when demand reach about D=50000000/450000- (19000+60000)= 134.8 Before breakeven, because of many factors such as high cost in investment, the expense each month lead to loss but in general, about 135 covered approximately 18% of the project This is an extremely safe number as we expect

The demand that we forecast for the project is our desired demand for 1 st floor (commercial promo- tion shelves), 2nd ( for official service), and 3rd ( for entertainment service) because of the special nature

of each activity, so we only lease a service package that cannot be rented with anyone else on each floor

Variable cost VND 79,000 79,000

Annual Revenue VND/year | 3,780,000,000 | 2,520,000,000 Annual Expense VND/year | 1,263,600,000 1,479,600,000

Simple payback period = Initial investment/ (Annually Revenue — Annually Expense) x 12

Green Building Project: 712,000,000/ 2,516,400,000= 3 Month So after 3 months, the project is available for making a profit

Vision Building Project: 805,000,000/1,040,400,000* 12= 9 Months So after 9 months, the project

is available for making a profit

Break-Even Sales =Fixed Cost x Total Revenue/Total Sales Total Variable Cost

Green Building Project: 50,000,000x315,000,000/315,000,000-79,000 = 50,012,542.83 (VND/month) Vision Building Project: 68,000,000x210,000,000/2,100,000,000-79,000 = 68,025.590.58(VND/month)

- Safety Margin is a measure of business risk The company will be more profitable and grow stronger when the number Margin of Safety is high

* Margin of Safety = Current Sales — Break-Even Sales

Green Building Project: 315,000,000- 50,012,542.83 = 264,987,457.2 (VND)

Vision Building Project: 210,000,000 — 68,025,590.58=141,974.409.4(VND)

* Safe Margin Ratio =Margin of Safety/Total Revenue

Green Building Project: 264,987,457.2/3 15,000,000 = 0.841230023

Vision Building Project: 141,974,409.4/2 10,000,000 = 0.676

The safety Margin Ratio for Green Building Project and Vision Building Project is at about 0.8 and 0.6, respectively There is no great oscillation, so both projects in theory can be a safe project for investment

3 Time value of money

We consider the research period for this project to be 5 years, in which the useful life of Green building and Vision building is 10 and 5 years, respectively

The rental project is continuous and stable, but there are many risks, for example, if the economy is depressed or the real estate market drops in price, the rental amount of the building will decrease and the revenue will decrease affected Therefore, our Minimum Acceptable Rate of Return (MARR) would be 20% per year

i-20%/year

A= 2,516,400,000

End of Year

| = 712,000,000

Figure 5: Green Building

A~ 1,040,400,000 +

Ỳ

I =805,000,000

End of Year

Figure 6: Vision Building

4, Comparison and Selection among alternatives

We directly compare the alternative by comparing PW

PW (20%) = - Initial Investment + Annual profit (P/A, 20%, 5)

Alternative Vision Building : PW (20%) = - 805,000,000+ 1,479,600,000(P/A, 20%, 5) = 674,600,000VND

Alternative Green Building : PW (20%) = - 712,000,000+ 2,516,400,000(P/A, 20%, 5) = 1,804,400,000VND

Hence, based on PW, Alternative Green Building is better (higher equivalent)

5 Depreciation and Income Taxes

6.1, Depreciation

The depreciation rate is the proportion at which an asset depreciates during its anticipated useful life It may also be described as the portion of an organization’s long-term investment in an asset that the organization claims as a tax-deductible expense over the course of the asset’s useful life For each class of

assets, it differs

Green Building:

As the result we calculated in the previous part, we found that the basis cost is 712,000,000 VND then

we applied the depreciation formula to find the depreciation rate per year: 1/ useful life of the asset = 1/10

= 10%

Based on the depreciation rate, we got the salvage value as follow

Salvage = Basis cost *(1-Depreciation Rate)” = 712,000,000*(1-10%)!0 = 248,259,049.4

By applying the SL method, we use the formula d; = dg =( B- SVy ) /N to find the depreciation in k (1 <k< 10)

We have: D,; = (B —SVy)/ N = (712,000,000-248,259,049.4)/10 = 46,374,095.06

The book value is calculated by formula: BVy = B — d;,* = B - (k*d,)

Figure 7: Green Building

Vision Building:

As the result we calculated in the previous part, we found that the basic cost is 805,000,000 VND then

we applied the depreciation formula to find the depreciation rate per year: 1/ useful life of the asset = 1/5 = 20%

Based on the depreciation rate, we got the salvage value as follow

Salvage = Basis cost *(1-Depreciation Rate)” = 805,000,000*(1-20%)> = 263,782,400

By applying the SL method, we use the formula d; = dg =( B- SVy ) /N to find the depreciation in k (1<k<5)

We have: D; = (B —SVy) / N = (805,000,000 -263,782,400)/5 = 108,243,520

The book value is calculated by formula: BVy = B — d;,* = B - (k*d,)

108,243,520 696.756.480

216.487.040 588.512.960 324.730.560 480.269.440 432.974.080 372.025.920

Figure 8: Vision Building The book value after 5 years equals the salvage value as we calculated above

6.2 Taxes

Based on the table 7.5 we evaluated the Income tax 35%

10

° 712,000,000 712,000,000

10 2,516,400,000 | 46,374,095.06 2,470,025,005 -864,509,066.8 1,605,516,838

Green Building:

Where BTCF = 209,700,000*12 = 2,516,400,000

After applying the income tax rate, we determine the present worth using following formula: PW= -712,000,000 +1,605,516,838(P/A,10 %,10) = 9,153,258,763 VND

Before applying the income tax rate, the present worth equals PW = -712,000,000 + 2,470,025,905 (P/A,10 %,10)= 14,391,220,398.7 VND

Based on the result, we can see that after considering the income tax rate, the present with decreased

by 5,237,961,636 VND

Vision Building:

Where BTCF = 86,700,000*12 = 1,040,400,000 VND

After applying the income tax rate, we determine the present worth using following formula: PW= -805,000,000 + 605,901,712(P/A,20%,5) =1,007,009,600 VND

Before applying the income tax rate, the present worth equals PW=-805,000,000 + 932,156,480 (P/A,20 % ,5)=1,982,707,169 VND

Based on the result, we can see that after considering the income tax rate, the present with decreased

by 975,697,569.1 VND

Since Green Building Project has a higher PW of ATCF (9,153,258,763 VND), Green Building Project is better

6 Evaluating Projects with the Benefit Cost Ratio Method

Recall that a group of mutually exclusive projects was defined as a group of projects from which, at most, one project may be selected The B—C method provides a ratio of benefits to costs At the rate MARR 20% B-C ratio of Green Building project and Vision building project is showed that:

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Green Building | Vision Building

Capital investment 712,000,000 805,000,000 Annual operating and maintenance | 1,263,600,000 1,479,600,000

AW(costs, Green Building) = 712,000,000(A/P.20%,10) + 1,263,600,000 = 1,433,412,000 AW(costs, Vision Building) = 805,000,000(A/P.20%,5) + 1,479,600,000 = 1,.748,792,000 B-C(Green Building) = 2,516,400,000/1,433,412,000 = 1.438936 > 1.0

Therefore, Green Building Project is acceptable

B-C(Vision Building — Green Building) = (1,040,400,000 - 2,516,400,000)/

( 1,748,792,000 - 1,433,412,000) = -4.68007 < 1.0

Therefore, the increment required for the Vision Building Project is not acceptable Project Green Building should be selected

I SOLUTION AND RECOMMENDATION

1 Solution

In conclusion, based on the comparison between Green Building Project and Vision Building Project

by using the Equivalent worth, Payback periods, Depreciation and Tax, B-C ratio It is visible that Green Building Project is clearly a better choice for investment This is because of the lower capital investment and shorter payback period

2 Recommendations

2.1 Marketing and promotion

Utilize online platforms and social network advertising (Facebook ads, TikTok ads, ) to reach potential tenants Highlight the benefits and unique features to attract businesses seeking a contemporary workspace In addition, consider offering free trial periods or discounted rates for a new tenant 2.2 Maintenance and upgrading the workspace

Maintain the building and address any necessary repairs promptly The well-maintained office will make tenants satisfied with the quality of the building Therefore, it is likely that they will commit to long-term relationships

2.3 Flexibilities

Offering versatile options to serve different tenant needs This can include short-term leases, co- working spaces, or the option to customize office layouts to suit specific requirements

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