Christopher Barke has been appointed as the director in Hatfield forest conservation trust which is a non- profit making organization. His appointment comes after his aunt donated a hall located at a prime place and set the appointment of his nephew as the condition to be met by the trust before it acquires the title to the land. As the new chairman to the land, Christopher has a proposal for the use of the land: he is offering the trust $750,000 per year for its use where he is to set up outdoor pursuits with an assault courses, mountain biking and canoeing. Fishing and clay shooting are also are also part of the assault.
The total revenue to be generated by the project will be$ 1,425,000 per annum. However there are costs involved. These are the fixed cost to recover the initial capital outlay of $87000 if the fish tank is installed underground. However the cost of $87000 is incurred in the first year. Being a capital expenditure, depreciation is amortized over the life time of the project. In this case depreciation amounting to $ 5800 will be charged in the first year. There is also a capital expenditure of $ 8400 that was used to purchase Canoes, bikes and rifles. Christopher will further incur $233250 variable costs. These are costs that will involve the maintenance of the hall, salaries and wages, foods and alcohol among other expenses. After all deductions are made Christopher will still have to pay$75000 to the trust as rent to the project. The net financial benefits that Christopher is likely to receive in the year are $ 409,950. However these profits would be reduced to$ 402,250, if the fish tank is installed underground. This is further simplified by the workings below:
Total profits=Total benefits –total costs
Total costs= Expenses=amortized initial capital-variable costs – rent
Total benefits 1,425,000
Less costs amortized for fifteen years (87000/15) 5800
Less costs amortized for five years 8,400.00
Less other variable costs 233,250
Total profits 409,950
Analysis of John and Imogen Proposals
On John and Imogen pilot project involves converting the hall into a hostel for the disadvantaged. This idea will bring in cash inflows of $40500 for the thirty weeks; this is because out of the ten guests one will be a child in care thus not paying. There are some standing charges of$34700 for expenses the trust will utilize the option given by the council as this is a cheaper cost as compared to $ 8000 that was to be provided under normal circumstances. This idea utilizes the funds from the minibus where $600 currently brought in by the van will no longer be raised. This leaves net cash inflow of $ 19220 for the pilot project. If the pilot project is considered to be successful, there will be an additional cost of $ 20000 this cost is not amortized as it forms part of the projects capital invested. The project will be closed for four weeks where there are no gains. The number of guest will increase to 30 bringing the total inflow 72000 for the remaining 20 weeks. Expenses will increase for the eighteen weeks to wages $8480 profits from minibus 320 and costs for all guests $1980. The net gains after expenses a negative 19600 for the eighteen weeks. However in the next year revenues will be constant at $217500 expenses will be $127500 leaving net gains of $ 90000
The following are the calculations on imogens proposal for a 30weeks:
Total cashflows $40500
Standing charges : food (40+4+10)*10*30= $16200
Labor cost $15900
Maintenance cost $2000
Lost revenues $600
Total costs $34700
Total benefits 5800
If the above project succeeds , the it will still continue running for the rest of the year. The following will be the monetary benefits from the project for the rest of the year:
Total revenue collected per annum=(30*150*9)+(29*150*18) 118800
Expeses: labour=(15900/30*48) 25440
Lost revenues from the bus 13200
Added costs 20000
In the first proposals there seems to be financial gains both to Charles and the trust. This is because the trust is guaranteed of $ 750000. Charles on the other hand is guaranteed of $ 409,950 after deducting all expenses. However this project is against the goals of the trust. The trust is a non -profit making organization and should therefore focus more on the projects that are of benefit to the community. The project further will involve felling of trees this is against the Kyoto protocol that deals with conservation of the environment. Most plants and animal species will be extinct if this proposal goes through. In addition, there is a large capital outlay involved in undertaking this project. If the project does not meet the forecasted cash flow, all the outlay goes into waste however, the company should not forget that if the project is a success, there is a lot of monetary gains from the project. The normal operations and maintenance cost of the project are too high. It will therefore take the company many weeks to break even. The management expects that the Royal Society for the Protection of Birds would provide a grant for the estate maintenance. But this option may fail considering that the company will have engaged in destruction of the ecological system
Johns and Imogens proposal may bring less cash flow as compared to Christopher’s. But the project is more viable considering that it gives the management time to evaluate viability of the project (Elvira, 118). If the management is not solvent, it may use the same cash generated by the pilot project to expand. The project requires less capital outlay as compared to Christopher’s. There is also less risk involved in operating this project. John has also got a way to minimize cost on ground maintenance while still sticking to the objectives of the trust. This is by taking one child per week to the hall. A good project should be cost effective and have an expert’s advice which should be stack to (Heldman 375). In this project cost may also be reduced by involving guests in the day to day running of the halls activities this will encourage the participation of many people and still enable the project to break even. This project may be considered to be all inclusive as it considers the poor. The physically disabled are also taken into consideration. The project will utilize the Trust’s bus; the financial gains from the bus will increase more than their current standings. This still boosts the revenues of the company. In evaluating both proposals, the management should ensure that they pick on a proposal that is in line with the management objectives (Rod et al 78). In this case this trust fund was set up to enable regions residents enjoy local country sides. The trust should lead by example on conservation of the environment as set in its objectives. The management should also ensure that current projects for example the bus is utilized in a way that its cash inflows are increased (William p 123). Further the management should consider the effects a project will have on the environment, as well as how the surrounding neighborhood is affected by the selected project. The rate at which capital invested is recovered should also be considered. The management should also ensure that all finances are not spent on a single project at the expense of other projects. Thus in view of these considerations the best undertaking would be the second project (John and Imogen pilot project).
Heldman. K, Claudia M., Patti J. Project Management Professional Exam Study Guide, New York: Sybex Publisher; 2007.
Rod.C. Paolo, S. Vivien, W. Economics and technological change. New York: Rowman & Littlefield publishers 1987.
William. I. The World Bank and Irrigation, New York, World Bank publishers 1995.
Elvira, H. Transport Project Evaluation: extending the social cost-benefit approach. New York Edward Elgar publishing, 2008.