ECO5BEC Ass 2

Code Description
LO1 Demonstrate knowledge and critical understanding of the economic principles relating to property demand, supply and price; property and building cycles; urban and regional location decisions; and land use.

LO2 Identify the impact of government intervention in the property and construction sector using coherent economic reasoning.

LO3 Interpret economic data and demonstrate the ability to communicate information, arguments and analysis to specialists and non-specialists effectively, presenting coherently argued written work based upon economic principles and theory.

LO4 Analyse and evaluate the appropriateness of different approaches to investment appraisal in development decisions.

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 analyse 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 to evaluate its impact on the economy, society and the environment. Your report should be suitable for a general non-expert audience and should show how economists would approach the investment decision and should explain the reasoning behind this approach. 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. Analyse 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. Analyse 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)

d. Recommend to BEC plc whether or not it should proceed with the proposed conversion project. You should base your recommendations on your conclusions from the three other sections of your report. (approximately 300 words)

Reference list and bibliography
You should include a reference list with a minimum of ten separate relevant and appropriate sources that you have written about and cited within your work.
You should also include a bibliography list with a minimum of ten separate relevant and appropriate sources that have influenced your thinking but are not cited in your work. Further information to support you with this assignment is available within the study materials for this module on the UCEM VLE. If you have any questions about this assignment, please contact your Module Team using the Assignment forum in the relevant Assessment preparation week on the VLE.

Additional guidance
• This section is based on the materials studied in Week 13;
• Explain the meaning and importance of the time value of money;
• Explain and compare two time-based and two non-time-based investment appraisal techniques, using simple numerical examples of your own to illustrate them;
• Draw up a table of your results and comment on the results; you can use these results in your answer to section d
• You are advised to include figures for two alternative projects in your numerical example so that you can show BEC plc how to compare results.