This project is to be a 70 unit assisted care facility (you can find the definition for assisted care facility at http://en.wikipedia.org/wiki/Assisted_living) with 17 units for congregate living (no assistance required) and 53 beds for assisted living units. The project will be located within city limits, three blocks from the local hospital and near other retirement type facilities. The demographic studies for the facility tend to show that given the local population there may be a need for a facility of this type. The cost of the land will be $250,000.00. Construction is estimated to cost $5,381,106.00. Equipment, i.e.: furniture for each unit and office furniture and equipment, is estimated to cost $259,978.00. Loan fees (the fees to obtain the loan) are expected to cost $233,861.00. The loan amount will be fixed at $5,512,451.00. Negotiations for the loan, purchase of the land, and construction permits will take place simultaneously. The estimated costs are set forth in the accompanying documents. The documents contain the Assumptions, Development costs, Revenue & Expense and Amortization of the loan. A copy of the construction contract is attached.

A Limited Liability Company (LLC) formed under the laws of the state of California will undertake the project. One of the members of the LLC will act as the Managing Member of the LLC. That person is also the general contractor who will build the facility. The facility will be owned and operated by the LLC, but the day-to-day management of the facility will be contracted out to a non-profit corporation who will have a manager on-site. Other than this one management person, all employees shall be employees of the LLC.

The sequence of events for this project, should it take place, is as follows:

Ten investors will each contribute $100,000.00 cash.

The project will be a Limited Liability Company formed under the laws of the state of California, and the project will be called Blueberry Acres.

One of the investors will be the general contractor building the facility.

The investor who is the general contractor will also act as the managing member for the LLC.

Another investor will act as the HVAC subcontractor.

The remaining investors are passive, that is they will have no active role in the project.

Each investor will be an equal owner in the project.

The project will not start until the last investor has contributed his/her investment.

Day one for our purposes is the day step 8 above is met.

The escrow for the sale of the land will open on day 30.

The escrow will close, and title to the land vest in the LLC, on day 75.

Construction permits will be applied for on day one.

The permitting authorities will require environmental reports which, may or may not, take 180 days for the authorities to finalize.

Construction will start on day 180 and take 455 calendar days to complete.

The loan documents will be signed on day 20 and the investors will not be personally liable for the loan.

The first resident will move in 30 days after completion of construction.

As an advisor to a potential investor you are asked to answer the following questions:

Is the budget for the 10-year projections reasonable?

Is the contract for the construction reasonable?

Is the anticipated return on investment acceptable?

Is it acceptable to have the general contractor also act as the LLC general manager?

What types of insurance should the LLC carry?

Is this a good investment?

Your response to each question must be in sufficient detail to provide a full understanding of the issue. You will be graded on the degree of completeness of your answer. You are expected to conduct sufficient research to fully answer each question in a logical and understandable manner.

ow ssussA 1001 PR VATE INFLATION RATE 4% REVENUE, ExPENSE $5,124 ASSUMPTION PUENT COST DEVELO REVENUE& EXPENSE RATE 0 YEAR PRO FORMA REVENUEBEXPENSE STATEMENT 4001, 400% OPERATING REVENUES 16,089 34 484 400.086 432.733 352,764 SHELTER REVENUE 1978 000% 000% 00ON MARKET SERVICE 000% 51,685. $1620 083 80 S 669.708 65 46% ASSISTED LIVING 1823.060 8011N 605,982 80 OTHER s 1.0230T2 100 oow s2023 179 100 00% 52104.103 100 00ni s 2.18a.27t 0000% s 2275 802 10000% s 23M,834 100 oong TOTAL OPERATING REVENUE 300% 300N INFLATOR OPERATING EXPENSES 3001, 680 31 650203 551.095 009 800 31 52% SALARIES 3122 809 30924. 206909 023% 212189 10 13% 74,825 00314 220 EMPLOYEE BENEFITS 94% 23296 248 0 285 000% S 000% PROFESSIONAL 408 0001, 7 815% 170.328 1665S 16881 SUPPLIES 190 117 71,723 355% 351% 7800 PURCHASES SERVICE 78,37) 80.725 300% 62400 64,272 60000 05% 66.200 303 s 68.100 10232 297N B491 21,593 046 091% REPAIRS & MAINTENANCE 9617 20 205 20,012 7200 Vehicle cost expente OTHER 06 07% 1,208,558 36 .092423 244597 5881 58 24% 1319 954 TOTAL 57 13% NETOPERATING INCOME BEFORE (89,35 906.552 41 43% S 955.84 42001, FIXED EXPENSES 007,497 28.77% 29 308 296,300 354M 297,300 DEPRECIATIONAMORTIZATION 06 S 298 306 1260W 56.050 52.140 64,773 Construction Ramp up 79,368 875N s 373,270 69* 368 733 1561 382133 INTEREST 76,472 747% 81,129 371% 83563 367% 070 364% 105,205 51,154 00% 109414 5 MANAGEMENT FEE 00% 18,342 000% LEASES 00.000 60.000 63684 6753 NET OPERATING INCOME INTEREST INCOME NON-OPERA NET INCOME (52084) 1230) 73,701 10 years 675 days 1321,97 10 years 675 day thyear 380,000 13 years 3 years Assume eatra 220 K lyear 486 700 8781, 526 486 1978 000% 0001, 2.132,722 971.82 S 2050 800 114 2461 50 10000N S 2.5%.967 100 00M 2002.30e 100 00 300 753763 3062% 776378 30 33% 965 254 558 956 000N 006N 207 B3.146 3384K 335A 2.339 94% 24.500 78744 2 2207 0 22.74 085% 5658N s 1441,682 55 50 1.061 606 43 13 8.285 68% S 29930e 216% 300,306 301,300 12 24% 3531% 500 000% 0001% 69,024 1978% 2218.03 800 11% 2.168,86 0000 262, 196 213,979 23424 239,819 302.300 109214 315.76 000% ow ssussA 1001 PR VATE INFLATION RATE 4% REVENUE, ExPENSE $5,124 ASSUMPTION PUENT COST DEVELO REVENUE& EXPENSE RATE 0 YEAR PRO FORMA REVENUEBEXPENSE STATEMENT 4001, 400% OPERATING REVENUES 16,089 34 484 400.086 432.733 352,764 SHELTER REVENUE 1978 000% 000% 00ON MARKET SERVICE 000% 51,685. $1620 083 80 S 669.708 65 46% ASSISTED LIVING 1823.060 8011N 605,982 80 OTHER s 1.0230T2 100 oow s2023 179 100 00% 52104.103 100 00ni s 2.18a.27t 0000% s 2275 802 10000% s 23M,834 100 oong TOTAL OPERATING REVENUE 300% 300N INFLATOR OPERATING EXPENSES 3001, 680 31 650203 551.095 009 800 31 52% SALARIES 3122 809 30924. 206909 023% 212189 10 13% 74,825 00314 220 EMPLOYEE BENEFITS 94% 23296 248 0 285 000% S 000% PROFESSIONAL 408 0001, 7 815% 170.328 1665S 16881 SUPPLIES 190 117 71,723 355% 351% 7800 PURCHASES SERVICE 78,37) 80.725 300% 62400 64,272 60000 05% 66.200 303 s 68.100 10232 297N B491 21,593 046 091% REPAIRS & MAINTENANCE 9617 20 205 20,012 7200 Vehicle cost expente OTHER 06 07% 1,208,558 36 .092423 244597 5881 58 24% 1319 954 TOTAL 57 13% NETOPERATING INCOME BEFORE (89,35 906.552 41 43% S 955.84 42001, FIXED EXPENSES 007,497 28.77% 29 308 296,300 354M 297,300 DEPRECIATIONAMORTIZATION 06 S 298 306 1260W 56.050 52.140 64,773 Construction Ramp up 79,368 875N s 373,270 69* 368 733 1561 382133 INTEREST 76,472 747% 81,129 371% 83563 367% 070 364% 105,205 51,154 00% 109414 5 MANAGEMENT FEE 00% 18,342 000% LEASES 00.000 60.000 63684 6753 NET OPERATING INCOME INTEREST INCOME NON-OPERA NET INCOME (52084) 1230) 73,701 10 years 675 days 1321,97 10 years 675 day thyear 380,000 13 years 3 years Assume eatra 220 K lyear 486 700 8781, 526 486 1978 000% 0001, 2.132,722 971.82 S 2050 800 114 2461 50 10000N S 2.5%.967 100 00M 2002.30e 100 00 300 753763 3062% 776378 30 33% 965 254 558 956 000N 006N 207 B3.146 3384K 335A 2.339 94% 24.500 78744 2 2207 0 22.74 085% 5658N s 1441,682 55 50 1.061 606 43 13 8.285 68% S 29930e 216% 300,306 301,300 12 24% 3531% 500 000% 0001% 69,024 1978% 2218.03 800 11% 2.168,86 0000 262, 196 213,979 23424 239,819 302.300 109214 315.76 000%