TUTORIAL 2

RES551 DEVELOPMENT APPRAISAL

PSJ International Sdn. Bhd, a leading development company, has approached your
firm to advise them on their upcoming proposed residential project on 20 acres of
land in Mukim Sepang. As a real estate consultant, you are required to provide an
appraisal exercise to determine the proposed project’s viability.

The client has furnished the incomplete cash flow for the proposed residential
development project (refer to Table 1).

Other information given is as follows:

Period of Development : 2 years

Interest rate : 5% per annum
Land Cost : RM30.00 psf.
Acquisition Cost : 3% from the Land Cost
Expected target rate of return : 30%

Using the cash flow approach, you are required to conduct the following: -

a) Payback Period by period (PBP).

b) Discounted Cash flow – Net Present Value (NPV) and Internal Rate of

return (IRR)

c) Advise your client on the project’s viability.

You may make assumptions where necessary and should be highlighted in the
footnotes.
 TABLE 1. PROJECTED CASH FLOW ON 20 ACRES SITE IN MUKIM SEPANG PROPOSED FOR RESIDENTIAL
DEVELOPMENT

YEAR 1 YEAR2
PERIOD OF DEVELOPMENT TOTAL 0 1 2 3 4 5 6 7 8

A. CASH INFLOW
Sales Down payment 7,000,000 - 3,500,000 3,500,000 - - - - - -
Sales Final full payment 63,000,000 - - - - - - - - 63,000,000
TOTAL CASH INFLOW 70,000,000 0 3,500,000 3,500,000 0 0 0 0 0 63,000,000

B.CASH OUTFLOW
0.0 Land Cost & Acquisition Cost ?? ??
1.0 Conversion Premium 500,000 - 500,000
2.0 Site Preparation 300,000 - - 150,000 150,000 - - - - -
3.0 Survey and Subdivision 30,000 - 21,000 9,000 - - - - - -
4.0 Infrastructure Cost 1,000,000 - - - 200,000 250,000 300,000 150,000 100,000 -
5.0 Building Construction Cost 17,000,000 - - - - 3,400,000 4,250,000 5,100,000 2,550,000 1,700,000
6.0 Professional Fees 600,000 - - - - 120,000 150,000 180,000 90,000 60,000
7.0 Landscaping 250,000 - - - - - - - 75,000 175,000
8.0 Advertising & Promotion 200,000 - - - 60,000 80,000 60,000 - - -
9.0 Project Management 900,000 - 112,500 112,500 112,500 112,500 112,500 112,500 112,500 112,500
10.0 Contingencies 2,000,000 - - - - - - - - 2,000,000
TOTAL CASH OUTFLOW 49,700,080 26,920,080 633,500 271,500 522,500 3,962,500 4,872,500 5,542,500 2,927,500 4,047,500
NET CASH FLOW - ?? ?? ?? ?? ?? ?? ?? ?? ??