Scenario
You work for ECO5 Ltd, a small economic consultancy. ECO5 Ltd specialises in advising commercial
clients on economic aspects of projects in the construction and property sectors in the built environment in your country. ECO5 Ltd has been contacted by BEC plc, a medium–sized construction company. BEC plc has the opportunity to purchase a small commercial building in a nearby city and to convert it into residential units. The building is located near to the city centre in an area which is
mainly commercial.
* BEC plc has asked ECO5 Ltd to write a report on the proposed project. The report will help BEC plc’s management to understand the various aspects of, and the processes involved in, evaluating
the economic viability of a project of this type. It will assess the economic climate in which the investment in the project will take place and it will analyze the financial and non–financial costs and benefits of the project, arriving at a supported conclusion.
(*You may select any further details relating to the project, including the country and city in which BEC plc is located.)
Task
Write a formal report for BEC plc’s managers which will enable them to assess the potential success of the proposed project from a financial and macroeconomic point of view, and evaluate its impact on the economy, society and the environment.
Your report should contain the following sections:
a. Explain the meaning of the time value of money. Explain and compare two time–based and two non–time–based investment appraisal techniques which may be used when assessing the financial viability of the conversion project. Illustrate these techniques by providing
simple numerical examples, in line with the following instructions:
• Create two sets of simple figures to represent the cash inflows and cash outflows on two
alternative building conversion projects of differing sizes;
• Use these figures to calculate the results of two time–based and two non–time–based
investment appraisal techniques;
• Draw up and present a table of the results of your calculations;
• Explain your results and indicate which of the two options would be the more favourable;
• Show your calculations in an Appendix to the Report. (approximately 600 words)
b. Analyze the main macroeconomic factors which may affect the financial success of the conversion project. You should support your answer by referring to relevant economic theories and to current economic data in your chosen country and city. Examples could include conditions in the residential and commercial property markets, the current inflation and unemployment rates, interest rates and any other relevant variables. (approximately
700 words)
c. Analyze and evaluate the potential effects of the conversion project on the economy and environment of the city and on the social welfare of the local population, supporting your answer with reference to relevant theories and current data. (approximately 800 words)