Real Estate Project Feasibility Study

Workshop Supplement

CONTENTS of the PFS

I. PROJECT SUMMARY

A. Name of the Project

- Briefly explain the choice of name

B. Location
- Pinpoint the location of the head office/project site
- Factors which affect the choice of location

C. Descriptive definition of the project

1. relation to national program
2. affinity to regional or sectoral studies
3. Project potential and proponent

D. Project objectives
Size, capacity, volume, worth, role in the industry and impact on the economy

E. Feasibiltiy Criteria
Most important guidelines used: profitability, socio-economic, environment

F. Highlights of the Project

1. History
2. Project Timetable and Status
3. Nature of Industry
4. Mode of Financing
5. Investment costs

G. Major Assumptions Used & Summary of Findings

H. Conclusions of the Study

1. Market Feasibility
2. Technical Feasibility
3. Financial Feasibility
4. Socio-Economic Feasibility
5. Management Feasibility

I. Limiting Conditions

II. MARKET STUDY

Lifeblood of PFS
Profitability – focal point
Demand-basic issue
Seeks to find :
1. Size, nature and growth of total demand

2015 Real Estate Consultant’s Comprehensive Course

 Real Estate Project Feasibility Study
Workshop Supplement

2. Description & price

3. Supply situation and the nature of competition
4. The different factors affecting the market
5. The appropriate marketing program

Market Study Outline

A. Product Description
B. Demand-Supply Analysis
C. Price Study
7 – P’s (Price, Place, Promotion, Product, People, Process, Physical Evidences)
D. Factors Affecting the Market
E. Survey Results
F. Analysis of Date Gathered
G. Conclusion and Recommendations

III. TECHNICAL STUDY

A. The Product Service

B. Construction Plan Process
C. Size & Construction Schedule
D. Materials and Equipment Supplies
E. Location
F. Utilities, Facilities, & Amenities
G. Quantity Survey (per sq.m)
H. Waste Disposal
I. Construction Cost
1. Direct Material
2. Direct Labor
3. Design Fees
4. Project Management Fees
5. Other Overhead Expenses
6. Permits & Licenses /Bonds
J. Construction Organization
K. Appendices
1. Location / Vicinity Map
2. Schematic Site Dev’t. Plan
3. Schematic Floor Plan / Layout
4. Construction Schedule Chart
5. Equipment Listing & Cost
6. Utilities Calculation
7. Facilities Breakdown of Cost
8. Projected Cost of Construction

IV. SOCIO – ECONOMIC STUDY

A. Employment & Income
B. Taxes

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 Real Estate Project Feasibility Study
Workshop Supplement

C. Supply of Product & Services

D. Demand for Materials

V. ORGANIZATION & MANAGEMENT STUDY

A. Formulation of Goals & Objectives
B. Basic Consideration
C. Form of Ownership
D. Organizational Chart
E. Officers & Key Personnel
F. Project Schedule

VI. ENVIRONMENTAL IMPACT ANALYSIS

VII. FINANCIAL STUDY

A. MAJOR ASSUMPTIONS
1. Existing business practices in the industry may provide same valuable information
and insights on the ff:
a. Credit Terms
b. Credit Extensions
c. Bad Debt Allowances
d. Bad debt write – off
e. Quality related cost
f. Deividend Policies
g. Sales discounts, and refunds
h. Labor management compensation
i. Overhead Accounts
j. Operating Accounts
k. Absorption rate
l. Fixed-Asset requirements
m. Method of depreciation amd amortization
n. Intangible-asset pre-requisites

2. Past Feasibility studies may reveal other factors not yet considered, specially those
items involved in the computations of:
a. Selling price
b. Sales forecast
c. Unforeseen costs
d. Production Volume
e. Product Mix

3. Governmental Regulations and incentives direct or indirectly affecting the product,

such as:
a. Tax rates
b. Ownership

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 Real Estate Project Feasibility Study
Workshop Supplement

c. Tax exemptions
d. Price Ceilings
e. Relevant PDs and Eos

4. Other pertinent data which can justify assumptions:

a. Industry profiles,
b. Pre-feasibility stuies,
c. Proceedings of symposia and conferences,
d. Research or policy studies of industry associations

In general, assumptions – kept to the minimum

Formulated only when necessary
Should remain intact and consistent throughout the analysis
- Factual
- Justifiable
- Realistic
- Workable

B. Total Project Cost

- Estimation of pre-construction, construction and post construction costs-initial asset
or capital requirement
1. Fixed Assets – land & improvement
2. Current Assets-project’s initial current asset needs
a. Inventory Investments – materials + freight
b. Inventory-related costs – direct & indirect labor, utilities, maintenance,
warehousing
c. Cash credits-pre-paid expenses, intangibles, organization expenses, pre-
operating costs, operating salaries, wages and fringe benefits, operating
taxes, transpo, office, advertising, cost borrowings, unforeseen costs.

C. KEY FORECAST VARIABLES

D. SOURCES OF FINANCING
1. List all sources both short term and long term: bank credit, insurance term loans,
mortgage loans, leasing arrangements, issuance of bonds & stocks, private
placements, investment banking arrangements, etc.
2. Select according to max. Profitability
3. Finalize the amount and the terms of each selected source
4. Determine the status of financing;releases approved application, pending
application.
5. Provide allowances for financing contingencies
6. Identify alternative sources

E. PREPARATION OF FINANCIAL ANALYSIS

1. Profitability

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 Real Estate Project Feasibility Study
Workshop Supplement

2. Liquidity
3. Cash Solvency
4. Growth Over Time

1. Profitability - Operational performance and efficiency of the project

a. Net profit margin = Net Income AT / Sales
b. Operating Profit Margin = Profit before interest & taxes / Sales
c. Gross Profit Margin = Gross Profit / Sales
d. Return on financier’s investment = Net Income / Stock equity
e. Return on Owner’s investment = Net Income / Stock Equity
f. Return on Common Stock Equity = Net Income-PS Dividend / Net worth-par
value of preferred stocks
g. Return on Net Operating profit = Profit before interest & Taxes / Total tangible
assets
h. Asset Turnover = Sales / Total Tangible Assets
i. Return on Assets or earning power = Net Income / Total Tangible Assets

2. Liquidity – firm’s ability to meet short-term obligations and to remain solvent

during hard times
a. Current Ratio = Current Assets / Current Liabilities
b. Quick or Acid-Test ratio = Current Assets-Inventories / Current Liabilities
c. Liquidity of Inventories = Cost of Sales / Average inventory
d. Defense position = Cash + marketable securities + receivavbles / projected
Operating expenses / no. Of days.

3. Test of debt service - project’s ability to meet long-term obligations

a. Debt –to-net worth ratio = Total liabilities / Total equities
b. Total capitalization ratio = Long-term liabilities / Long-term liabilities / Long-
term liabilities & equity

4. Test of total debt coverage =

a. Profit before interest & taxes / (interest + principal payments) (1/1-income tax
rate)

5. Funds-Flow Analysis – determine the major uses & sources of funds w/in one year
in a project’s life
a. Cash Flow Ananlysis
b. Working Capital Flow Analysis

6. Test of operating leverage – indicates how the project uses its assets for which it
pays a fixed cost
Difference between fixed and variable costs
a. Break-even Volume analysis
BEV = Fixed Cost / Selling price –variable cost/unit
b. Break-even Cash Analysis
BEC =Cash Fixed Cost / Selling Price-cash variable cost/unit

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 Real Estate Project Feasibility Study
Workshop Supplement

c. Break-even Selling Price Analysis

BESP = Variable Costs+fixwd costs/unit volume=Total Costs/Sales x
Selling Price
d. Break-even Sales Analysis
BES = BESP x unit volume = Fixed Cost / 1-(Variable Cost/Net sales)

7. Test of financial leverage – ratios present how a project employs funds which pay
a fixed return
a. Earnings per share = Net Income / Shares
b. Dividends per share = Net Income-Preferred stock dividends-retained
earnings / common sahre
8. Test of Capital Investment – evaluate the justification for investing in the project
a. Average rate of return = Ave. Net Income / Ave. Net Investment
b. Payback Period in years = initial –year cash outflow / succeeding annual
net cash flow.
c. Capital recovery or cash pay off period (in years = Stocks / Annual Cash
Dividends)

F. FINANCIAL ANALYSIS

G. DECISION CRITERION : Computation of NPV & IRR

H. SIMULATION, SENSITIVITY ANALYSIS, PROBABILITY TREE

I. WITH OR WITHOUT PROJECT ANALYSIS

VIII - RECOMMENDATION

2015 Real Estate Consultant’s Comprehensive Course

 Real Estate Project Feasibility Study
Workshop Supplement

2015 Real Estate Consultant’s Comprehensive Course