Question: Prepare a 24-month cash budget for building North Point, starting in May 2014.

Domus would have to hire a team of architects to redesign North Point, at a cost of $500,000 in fees. The initial design had originally cost $800,000. Once the building process commenced, it would take 14 months to complete the project. The first step in the building process involved excavating the land to be developed. Excavation would cost a total of $500,000, expensed equally between July and August of 2014. An external company would be hired to complete the task, and the price included the use of all equipment, labour and removal of the land waste from the site. Based on past projects, Mescia could estimate the amount of labour needed for the development project. Domus hired contract labourers to complete all tasks, and they supplied their own equipment so there were no capital investments during the development phase. Fifteen labourers would be needed, each working eight hours a day, five days a week. These labourers would be hired on contract and would average a pay rate of $15 an hour (including benefits). The key components of building the structure included concrete, steel and exterior finishings, which included roofing. These costs would total $1.9 million, $2.5 million, $1 million, respectively. In addition, windows would cost $725,000 and interior finishings (excluding customization) would total $5 million. Domus projected that these expenses would be paid in equal monthly installments over the 14 months of development Additionally, Domus incurred holding costs for the land. By law, Domus paid property tax on the land to the City of London. Annual property taxes cost approximately $40,000 and were paid in April of each year. Domus also paid interest semi-annually to the landowners on the $900,000 (net amount owed) on the land at an annual rate of 10 per cent. It was an industry norm that developers receive three years interest free on the land. Since Domus had already exceeded its three years, until the company could produce a return to its landowner, interest would have to be paid on the land, with payments due in February and August of each year. Mescia projected that Domus would continue to pay interest until the development phase was complete. Unique to the London market, customers were unaccustomed to buying a property without seeing a physical model; consequently, Mescia projected that only 14 units of the building would be sold in the pre- sale phase (two months prior to commencement the building phase). Throughout the building phase, Mescia estimated that 28 more units would be sold, and the remaining units sold within 12 months after completion of the development. Sales would be sporadic within these time periods, so Mescia assumed that no more than two purchases would occur in a single month. To secure their purchases, customers would have to pay a 10 per cent deposit (up-front) on the loft. Mescia believed the average loft selling price would be $500,000. The customization and upgrade option was another key selling feature of the lofts. Mescia knew all customers would want to customize and upgrade basic features and that each customer would differ on the amount spent. Some customers would spend as little as $5,000 in upgrades, while others would spend closer to $50,000. Mescia projected each customer's spending would average an additional $15,000 for customization and upgrades. Fees for all upgrades would be included with their deposit when buyers signed their initial purchase and sale agreement. No profit was made on upgrades. Mescia also considered the impact the North Point project would have on his administrator's workload. He estimated two hours a day would need to be allocated to the project. The current administrator earned $42,000 annually, including benefits. Finally, should additional expenses arise, Mescia budgeted $500,000 in other costs in order to ensure that the development progressed on schedule without delays. Mescia believed this expense would be incurred evenly throughout the two years. Mescia projected total revenue from the sale of the North Point lofts to be $25.5 million based on the average selling price per unit. As soon as all of the North Point lofts were sold and ownership was transferred, Domus expected to net a 20 per cent profit on the entire project. Because the project had been on hold for so long, Mescia, as the landholder, wondered whether the most profitable option would be to arrange the sale of the land to a competitor. Mescia estimated that the value of the land had appreciated by approximately 50 per cent over the past five years. If Domus decided to move forward with the project, construction would begin in July 2014. In May, Mescia would begin marketing the development. He anticipated the marketing mix to include signage erected on the site, a feature section on the company website, print advertising in the local newspaper and in the London Home Builders' Association directory, as well as a model home. See Exhibit 6 for an advertisement from the London Home Builders' Association directory. Mescias marketing budget was $375,000 and would be spent over 24 months. Domus would have to hire a team of architects to redesign North Point, at a cost of $500,000 in fees. The initial design had originally cost $800,000. Once the building process commenced, it would take 14 months to complete the project. The first step in the building process involved excavating the land to be developed. Excavation would cost a total of $500,000, expensed equally between July and August of 2014. An external company would be hired to complete the task, and the price included the use of all equipment, labour and removal of the land waste from the site. Based on past projects, Mescia could estimate the amount of labour needed for the development project. Domus hired contract labourers to complete all tasks, and they supplied their own equipment so there were no capital investments during the development phase. Fifteen labourers would be needed, each working eight hours a day, five days a week. These labourers would be hired on contract and would average a pay rate of $15 an hour (including benefits). The key components of building the structure included concrete, steel and exterior finishings, which included roofing. These costs would total $1.9 million, $2.5 million, $1 million, respectively. In addition, windows would cost $725,000 and interior finishings (excluding customization) would total $5 million. Domus projected that these expenses would be paid in equal monthly installments over the 14 months of development Additionally, Domus incurred holding costs for the land. By law, Domus paid property tax on the land to the City of London. Annual property taxes cost approximately $40,000 and were paid in April of each year. Domus also paid interest semi-annually to the landowners on the $900,000 (net amount owed) on the land at an annual rate of 10 per cent. It was an industry norm that developers receive three years interest free on the land. Since Domus had already exceeded its three years, until the company could produce a return to its landowner, interest would have to be paid on the land, with payments due in February and August of each year. Mescia projected that Domus would continue to pay interest until the development phase was complete. Unique to the London market, customers were unaccustomed to buying a property without seeing a physical model; consequently, Mescia projected that only 14 units of the building would be sold in the pre- sale phase (two months prior to commencement the building phase). Throughout the building phase, Mescia estimated that 28 more units would be sold, and the remaining units sold within 12 months after completion of the development. Sales would be sporadic within these time periods, so Mescia assumed that no more than two purchases would occur in a single month. To secure their purchases, customers would have to pay a 10 per cent deposit (up-front) on the loft. Mescia believed the average loft selling price would be $500,000. The customization and upgrade option was another key selling feature of the lofts. Mescia knew all customers would want to customize and upgrade basic features and that each customer would differ on the amount spent. Some customers would spend as little as $5,000 in upgrades, while others would spend closer to $50,000. Mescia projected each customer's spending would average an additional $15,000 for customization and upgrades. Fees for all upgrades would be included with their deposit when buyers signed their initial purchase and sale agreement. No profit was made on upgrades. Mescia also considered the impact the North Point project would have on his administrator's workload. He estimated two hours a day would need to be allocated to the project. The current administrator earned $42,000 annually, including benefits. Finally, should additional expenses arise, Mescia budgeted $500,000 in other costs in order to ensure that the development progressed on schedule without delays. Mescia believed this expense would be incurred evenly throughout the two years. Mescia projected total revenue from the sale of the North Point lofts to be $25.5 million based on the average selling price per unit. As soon as all of the North Point lofts were sold and ownership was transferred, Domus expected to net a 20 per cent profit on the entire project. Because the project had been on hold for so long, Mescia, as the landholder, wondered whether the most profitable option would be to arrange the sale of the land to a competitor. Mescia estimated that the value of the land had appreciated by approximately 50 per cent over the past five years. If Domus decided to move forward with the project, construction would begin in July 2014. In May, Mescia would begin marketing the development. He anticipated the marketing mix to include signage erected on the site, a feature section on the company website, print advertising in the local newspaper and in the London Home Builders' Association directory, as well as a model home. See Exhibit 6 for an advertisement from the London Home Builders' Association directory. Mescias marketing budget was $375,000 and would be spent over 24 months