More than half of the residents in Islamabad are from other cities they do not own a house. These renters are either supposed to pay heavy rent in the twin cities or they have to travel from faraway places like Texila, Wah Cantt, Rawat etc. The problem with the second possibility is that these days there is rapid increase in the fuel price therefore; the second possibility of cheap shelter is creating an increasing burden in the form of rising cost of daily commute. In the recent past Government of Pakistan introduced Naya Pakistan Housing Scheme. The issue with the Naya Pakistan Housing Scheme is that the banking sector does not want to facilitate those individuals who want to buy a house in a private society. In addition, the government also failed to construct the promised low cost houses/apartments. Suppose your organization is planning to facilitate government by introducing low cost 800 square feet apartments. You have to analyze the following data; right now cost of land for an apartment is Rupees 2,500,000 per capita. In addition, during the first year (year 0/2021) the organization has to bear a cost of Rupees 1,250,000 per apartment to lay the foundation. In 2022 the estimated cost of construction including finishing is Rupees 3,750,000 per apartment. A survey conducted by your organization suggests that most the individuals in the twin city are willing to pay Rupees 2.5 million per year for the next four years. At the start of 2023 (before balloting) the interested potential buyers have to pay a down payment of Rupees 2,500,000. Later on, from 2024 to 2026 the buyers are supposed to pay three annual installments of Rupees 2,500,000 each.
A) Is the project acceptable for the organization if the maximum acceptable Payback Period is 3 years.
B) Assume acceptable Accounting Rate of Return is 33%. Either your organization want to invest in this project or not justify your answer with solid reasoning.
C) If the maximum acceptable DPBP for the organization is 4 years. Is it worthwhile to start the project immediately? (use i=10%)
D) Find the Net Present Value of the costs and benefits on the basis of 10% discount rate.
E) Find the Internal Rate of Return.
F) Find the Profitability Index at i=10%
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