Dubai Parks and Resorts Project

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  1. Project Description
  2. Project Governance
  3. Structure of Financing the Project
  4. Risk and Return Structure of the Project
  5. Recommendations
  6. Conclusion
  7. Works Cited

Project Description

As the entertainment industry in Dubai is expanding due to robust economic growth, the demand for recreational centers such as parks, resorts, and other related establishments has been on the rise. The increase in demand for such services in the Dubai market necessitates the need for the Dubai Parks and Resorts Project. The proposed project will consist of products such as Motiongate, Legoland, Legoland Water Park, Bollywood Parks, Riverland, and Lupita. The project aims at addressing the needs of customers in the family segment, who are interested in family-friendly park services since the proposed Dubai Parks and Resorts Project will offer customized services to a myriad of customers.

Despite the existence of more than twenty establishments in Dubai currently offering similar services that the proposed project intends to present, very few parks offer customized and family-friendly services despite the existence of more than three million potential clients. Therefore, the actualization of the proposed Dubai Parks and Resorts Project will bridge the existing gap by integrating the aspect of service customization and targeting the family segment. The findings of research in the Dubai parks and resorts industry reveal that only seven parks currently offer customized services against a surging demand that they cannot meet. It was also established that the existing parks and resorts charge uncompetitive prices for their services, which very few locals can afford. Therefore, the proposed Dubai Parks and Resort Project will be modeled around the affordability of the services as a strategy for ensuring sustainable competitive advantage and prompt market penetration.

Project Governance

Since the proposed project is capital intensive, the governance will be accomplished by a team of three experts supported by a team of 30 implementers. The project director will head the project planning implementation phases assisted by a project manager, who will be the primary supervisor of project implementation strategies put in place. The last expert, the technical project manager, will be mandated with the role of providing technical skills in the implementation of the project since the role will be taken by an expert in the field construction. Therefore, the hierarchal ladder in terms of project leadership will begin with the project director and end with the project technical manager (Bloom 29). The technical manager will manage the implementation team. The summary of project governance is presented in figure 1 below.

The technical manager will manage the implementation team. The summary of project governance

Structure of Financing the Project

Start-up costs

The proposed Dubai Parks and Resorts Project is quite capital intensive. Some of the start-up costs will be incurred in putting up the centre, purchase of land (approximately 25 acres), and other activities. The capital will be raised through three ways. The first approach is through the seed investors. This group of investors is made up of the company management team and the seed investors. This is a form of investment in which the investors purchase a part of the business. Their investment is quite risky and is based on the success of the business (Drucker 33). The seed investors will be five in number. Secondly, capital will be raised through the start-up investors. This form of investment is secure because the investors get both the controlling and voting rights (Finnerty 15). These investors will be four in number. Finally, capital will be raised through a loan from financial institutions. The loans will both short and long-term. The table presented below shows a summary of the start-up items that need funding.

Item Amount
Expenses 459,150
Assets 10,555,850
The total amount required 11,015,000

The table presented below shows a breakdown of the items.

Start up expenses
Cost of seed capital 70,000
Costs of acquiring the loan 219,150
Cost of raising equity fund 50,000
Professional fees 120,000
Total expenses 459,150
Start up assets
Cash 400,000
non-current assets 10,155,850
Total assets 10,555,850
Total start up costs 11,015,000

The table presented below shows a summary of the capital raised

Amount in UAD
Short term borrowing 1,780,000
Long term borrowing 7,305,000
Borrowing 9,085,000
Capital
Seed investors
1 30,000
2 30,000
3 30,000
4 30,000
5 30,000
Total 150,000
Start up investors
1 445,000
2 445,000
3 445,000
4 445,000
1,930,000
Total liabilities and capital 11,015,000

Assumptions

The business will be set up on land that is approximately 25 acres. The traffic in the region is about 62,700 cars per day. The business intends to offer a variety of services that will target various age groups. Based on the recent census that was carried out, the total population in the region consists of 956,554. The business targets a population that is aged between 5 and 70 years. The total population in the range is 836,798. The median age of this population is 28. The ratio of female to male is 0.5. Further, 79% of this population is white. Further, 49% of this population is aged between 27 and 55 years. The population is expected to grow annually by 6.65%.

The company targets 15% of the population aged between 5 and 70 years. Thus, the number of estimated customers is 125,520. Further, it is expected that each person will spend approximately UAD56.74 per year at the park. This will amount to UAD7, 122,216 for the entire year. The sales and other costs will be estimated based on the assumption that the company is operating at 40% of the full capacity. The start-up costs will be amortized over a period of five years. The massive amount borrowed will be repaid over a period of twenty years at 10% per year. The pricing used by the company is based on the averages in the industry. The company will outsource several services such as cable TV, payroll services, and waste management among others. Also, the projection of the staff salaries will be based on the assumption that they are full-time employees working seven hours per day. The tax rate in the country currently stands at UAD 20 for every UAD2, 000 of evaluated value. Property tax is currently at 0.000087 of the buying price of the property. The license for building space is UAD75 for every 150,000 square feet. An additional area will be charged at UAD10 for every 2000 square feet. The corporation tax rate is estimated at 32.75% (Bloom 28).

Risk and Return Structure of the Project

Pro forma financial statements

Forecasts

Sales and direct costs forecast.

Sales 2016
Bumper boats 520,926
Go carts 2,387,602
Sky Coaster 308,700
Batting cages and gaming 366,562
Climbing walls and golf 1,045,808
Indoor activities 36,616
Artifacts 56,350
Party rooms and meal 2,399,652
Total 7,122,216
Direct costs
Bumper boats 130,232
Go carts 596,900
Sky Coaster 77,176
Batting cages and gaming 81,994
Climbing walls and golf 168,070
Indoor activities 5,492
Artifacts 14,088
Party rooms and meal 1,199,826
Total 2,273,778

Personnel expenses forecast

The company will have four categories of personnel. The total number of employees will be 40. The table presented below shows the summary of the personnel expenses.

Department Number of employees Cost
Operations 22 777,312
Sales and marketing 4 110,400
General and administrative 8 342,240
Others 6 154,560
Total 1,384,512

Open day balance sheet

Dubai Parks and Resorts Project. Balance sheet. As at 31st January 2016

Amount in UAD
Assets
Current assets
Cash 400,000
Non-current assets
Fixed assets 10,155,850
Total assets 10,455,850
Liabilities and capital
Current liabilities
Short term borrowing 1,780,000
Non-current liabilities
Long term borrowing 7,305,000
Total liabilities 9,085,000
Capital
Seed investors 150,000
Start up investors 1,780,000
Retained earnings (459,150)
Total capital 1,470,850
Total liabilities and capital 10,555,850

Dubai Parks and Resorts Project. Profit and loss projection. For the 12 month period ended 31st December 2016.

January February March April May June July August September October November December 2016
Sales UAD492,552 UAD656,736 UAD985,104 UAD985,104 UAD985,104 UAD985,104 UAD656,736 UAD492,552 UAD220,806 UAD220,806 UAD220,806 UAD220,806 UAD7,122,216
Direct Cost of Sales UAD154,664 UAD206,220 UAD309,330 UAD309,330 UAD309,330 UAD309,330 UAD206,220 UAD154,664 UAD78,672 UAD78,672 UAD78,672 UAD78,672 UAD2,273,776
Direct salaries UAD64,776 UAD64,776 UAD64,776 UAD64,776 UAD64,776 UAD64,776 UAD64,776 UAD64,776 UAD64,776 UAD64,776 UAD64,776 UAD64,776 UAD777,312
Total Cost of Sales UAD219,440 UAD270,996 UAD374,106 UAD374,106 UAD374,106 UAD374,106 UAD270,996 UAD219,440 UAD143,448 UAD143,448 UAD143,448 UAD143,448 UAD3,051,088
Gross Margin UAD273,112 UAD385,740 UAD610,998 UAD610,998 UAD610,998 UAD610,998 UAD385,740 UAD273,112 UAD77,358 UAD77,358 UAD77,358 UAD77,358 UAD4,071,128
Gross Margin % 55% 59% 62% 62% 62% 62% 59% 55% 35% 35% 35% 35% 57%
Operating Expenses
Sales and Marketing salaries UAD9,200 UAD9,200 UAD9,200 UAD9,200 UAD9,200 UAD9,200 UAD9,200 UAD9,200 UAD9,200 UAD9,200 UAD9,200 UAD9,200 UAD110,400
Promotional activities UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD36,000
Travel UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD3,600
Sundry expenses UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD18,000
General and Administrative salaries UAD28,520 UAD28,520 UAD28,520 UAD28,520 UAD28,520 UAD28,520 UAD28,520 UAD28,520 UAD28,520 UAD28,520 UAD28,520 UAD28,520 UAD342,240
Utilities UAD2,400 UAD2,400 UAD2,400 UAD2,400 UAD2,400 UAD2,400 UAD2,400 UAD2,400 UAD2,400 UAD2,400 UAD2,400 UAD2,400 UAD28,800
Insurance UAD2,460 UAD2,460 UAD2,460 UAD2,460 UAD2,460 UAD2,460 UAD2,460 UAD2,460 UAD2,460 UAD2,460 UAD2,460 UAD2,460 UAD29,520
Telephone UAD1,600 UAD1,600 UAD1,600 UAD1,600 UAD1,600 UAD1,600 UAD1,600 UAD1,600 UAD1,600 UAD1,600 UAD1,600 UAD1,600 UAD19,200
Other salaries UAD12,880 UAD12,880 UAD12,880 UAD12,880 UAD12,880 UAD12,880 UAD12,880 UAD12,880 UAD12,880 UAD12,880 UAD12,880 UAD12,880 UAD154,560
Postal Fees UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD300 UAD3,600
Professional Fees UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD1,500 UAD18,000
Office Supplies UAD2,520 UAD2,520 UAD2,520 UAD2,520 UAD2,520 UAD2,520 UAD2,520 UAD2,520 UAD2,520 UAD2,520 UAD2,520 UAD2,520 UAD30,240
Bank charges UAD200 UAD200 UAD200 UAD200 UAD200 UAD200 UAD200 UAD200 UAD200 UAD200 UAD200 UAD200 UAD2,400
Business License UAD70 UAD70 UAD70 UAD70 UAD70 UAD70 UAD70 UAD70 UAD70 UAD70 UAD70 UAD70 UAD840
Maintenance of facility UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD3,000 UAD36,000
Total Operating Expenses UAD69,450 UAD69,450 UAD69,450 UAD69,450 UAD69,450 UAD69,450 UAD69,450 UAD69,450 UAD69,450 UAD69,450 UAD69,450 UAD69,450 UAD833,400
Profit Before Interest and Taxes UAD203,662 UAD316,290 UAD541,548 UAD541,548 UAD541,548 UAD541,548 UAD316,290 UAD203,662 UAD7,908 UAD7,908 UAD7,908 UAD7,908 UAD3,237,728
EBITDA UAD203,662 UAD316,290 UAD541,548 UAD541,548 UAD541,548 UAD541,548 UAD316,290 UAD203,662 UAD7,908 UAD7,908 UAD7,908 UAD7,908 UAD3,237,728
Interest Expense UAD88,694 UAD88,324 UAD87,948 UAD87,566 UAD87,180 UAD86,790 UAD86,392 UAD85,988 UAD85,580 UAD85,166 UAD84,746 UAD84,320 UAD1,038,694
Taxes Incurred UAD34,490 UAD75,230 UAD149,688 UAD149,814 UAD149,942 UAD150,070 UAD75,866 UAD38,832 (UAD25,632) (UAD25,496) (UAD25,356) (UAD25,216) UAD722,232
Net Profit UAD80,478 UAD152,738 UAD303,912 UAD304,168 UAD304,426 UAD304,688 UAD154,032 UAD78,840 (UAD52,040) (UAD51,764) (UAD51,482) (UAD51,196) UAD1,476,800

Dubai Parks and Resorts Project

Cash flow projections. For the 12 month period ended 31st December 2016.

Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec 2016
Cash Received
Cash Sales UAD492,552 UAD656,736 UAD985,104 UAD985,104 UAD985,104 UAD985,104 UAD656,736 UAD492,552 UAD220,806 UAD220,806 UAD220,806 UAD220,806 UAD7,122,216
Subtotal Cash from Operations UAD492,552 UAD656,736 UAD985,104 UAD985,104 UAD985,104 UAD985,104 UAD656,736 UAD492,552 UAD220,806 UAD220,806 UAD220,806 UAD220,806 UAD7,122,216
Subtotal Cash Received UAD492,552 UAD656,736 UAD985,104 UAD985,104 UAD985,104 UAD985,104 UAD656,736 UAD492,552 UAD220,806 UAD220,806 UAD220,806 UAD220,806 UAD7,122,216
Expenditures
Cash Spending UAD115,376 UAD115,376 UAD115,376 UAD115,376 UAD115,376 UAD115,376 UAD115,376 UAD115,376 UAD115,376 UAD115,376 UAD115,376 UAD115,376 UAD1,384,512
payment of utilities UAD9,890 UAD299,762 UAD394,528 UAD565,806 UAD565,552 UAD565,292 UAD559,116 UAD384,362 UAD293,640 UAD157,462 UAD157,184 UAD156,902 UAD4,109,496
Subtotal Spent on Operations UAD125,266 UAD415,138 UAD509,904 UAD681,182 UAD680,928 UAD680,668 UAD674,492 UAD499,738 UAD409,016 UAD272,838 UAD272,560 UAD272,278 UAD5,494,008
Additional Cash Spent UAD0 UAD0 UAD0 UAD0 UAD0 UAD0 UAD0 UAD0 UAD0 UAD0 UAD0 UAD0 UAD0
Principal Repayment of Current Borrowing UAD17,990 UAD18,274 UAD18,564 UAD18,858 UAD19,156 UAD19,460 UAD19,768 UAD20,082 UAD20,400 UAD20,722 UAD21,050 UAD21,384 UAD235,708
Long-term Liabilities Principal Repayment UAD9,618 UAD9,700 UAD9,780 UAD9,862 UAD9,944 UAD10,026 UAD10,110 UAD10,194 UAD10,280 UAD10,364 UAD10,452 UAD10,538 UAD120,868
Subtotal Cash Spent UAD152,874 UAD443,112 UAD538,248 UAD709,902 UAD710,028 UAD710,154 UAD704,370 UAD530,014 UAD439,696 UAD303,924 UAD304,062 UAD304,200 UAD5,850,584
Net Cash Flow UAD339,678 UAD213,624 UAD446,856 UAD275,202 UAD275,076 UAD274,950 (UAD47,634) (UAD37,462) (UAD218,890) (UAD83,118) (UAD83,256) (UAD83,394) UAD1,271,632
Cash Balance UAD739,678 UAD953,302 UAD1,400,158 UAD1,675,358 UAD1,950,434 UAD2,225,384 UAD2,177,750 UAD2,140,288 UAD1,921,398 UAD1,838,280 UAD1,755,026 UAD1,671,632 UAD20,448,688

Dubai Parks and Resorts Project

Balance Sheet. As at 31st December 2016.

Assets
Current assets
Cash 1,671,632
Non-current assets
Fixed assets 10,155,850
Total assets 11,827,482
Liabilities and capital
Current liabilities
Accounts payable 151,404
Short term borrowing 1,544,292
Non-current liabilities
Long term borrowing 7,184,132
Total liabilities 8,879,828
Capital
Seed investors 150,000
Start up investors 1,780,000
Retained earnings 459,150
Profit 1,476,802
Total capital 2,947,652
Total liabilities and capital 11,676,076

Ratio analysis

The table presented below shows a summary of the ratios for the Dubai Parks and Resorts Project.

2016
Sales Growth 0.00%
Percent of Total Assets
Total Current Assets 14%
non-current assets 86%
Total Assets 100%
Current Liabilities 14%
Long-term Liabilities 61%
Total Liabilities 75%
Net Worth 25%
Percent of Sales
Sales 100%
Gross Margin 57%
Selling, General & Administrative Expenses 36%
Advertising Expenses 1%
Profit Before Interest and Taxes 45%
Liquidity ratios
Current 0.89
Quick 0.89
Leverage ratios
Total Debt to Total Assets 75%
Debt to Net Worth 3.01
Current Liabilities to total liabilities 0.19
Profitability ratios
Net Profit Margin 21%
Return on Equity 50%
Activity Ratios
Accounts Payable Turnover 26.41
Payment Days 24
Total Asset Turnover 0.59

The non-current assets account for a larger proportion of the total assets, that is, 86%. Further, the ratios show that the company will heavily depend on debt to finance the projects (Arjoon 45). The value of debt is about three times that of capital raised. The gross profit margin is slightly above average. The other profitability ratios are high. Further, the liquidity ratios are low. They show that the company may face difficulties in paying short-term obligations using current assets during the first year of operation.

Break even analysis

The break-even point is calculated based on the assumption that the fixed cost is made up of loan repayments, a section of the payroll and other expenses. The break-even analysis gives the minimum number of units of output that must be produced and sold to enable the business to pay the total cost of operation (Subramanyam 16). Thus, at break-even point;

Total revenue (P * Q) = total cost [Variable (VC * Q) + fixed cost]

The approximated percentage of variable cost is 33.5% while the approximately monthly fixed costs are UAD69, 450. The average selling price is UAD56.74. Therefore, the corresponding variable cost per unit is UAD18.95.

56.74 * Q = (18.95 *Q) + 69,450

37.79Q = 69,450

Q = UAD1, 837.71

From the calculations, the break-even number of units is UAD1, 837.71 while the break-even monthly sales units amount to UAD104, 274.53. Therefore, for the company to be able to meet all the running expenses, then it needs to generate revenue amounting to UAD104, 274.53 per month. The value equals to UAD1, 251,294.3 for the entire year. The estimated annual revenue for the year 2016 is UAD7, 122,216. This value exceeds the break-even annual sales. This shows that the project is profitable (Manas 31).

Risks in the proposed project

Since the project is capital intensive and has a fixed deadline for implementation, the main risks that might affect its execution are financial, environment, and operational. Besides, risks such as currency fluctuations and economic swings in the Dubai market might also affect the project are negligible proportion. The risks are discussed below.

Environmental risk

The aspects of sustainability, pollution, environmental degradation and other environmental concerns must be reviewed in the course of this project. However, the risk is low since the project will have very little negative impact on the environment.

Operational risk

From the definite time frame for implementation, it is apparent that this project has clear specific and period of implementation. Besides, the inflexible time allocation for completion of the project may be faced with challenges in channels of reporting progress that is critical in ensuring clear communication from one stage to another. The risk level in this category is high.

Financial risk

The main financiers of the project are the financial institutions and the seed investors who have clear demands for a completion of the project with its deadline without any major huddles. This risk in this classification is medium.

Recommendations

The probability that the projections will be met is very high since the appraisal was based on the minimum of the maximum data. However, in the event of mismatch in the breakeven projection, the project leadership team is in a position to employee alternatives such as extra financing and streamlining the execution team to guarantee sustainability. Besides, the project may franchise some implementation components to established businesses as a risk reduction strategy. Lastly, the project execution team will be empowered to ensure that there is proactive communication in each stage of project execution as a remedy for conflicts and inefficiency tracking.

Conclusion

The proposed Dubai Parks and Resorts Project is expected to breakeven within two years. The business targets clients within and without Dubai interested in park and resort services that are very affordable. The main threats that might affect the project are financial, environmental, and operational risks. However, the project is likely to survive these risks since the project team is qualified, finances are adequate, and the project can be implemented in phases.

Works Cited

Arjoon, Surendra. Corporate Governance: An Ethical Perspective, Trinidad: University of the West Indies, 2009. Print.

Bloom, Paula. Circle of Influence: Implementing Shared Decision Making and Participative Management. Lake Forest, IL: New Horizons, 2004. Print.

Drucker, Peter. People and Performance. Massachusetts, Boston: Harvard Business School Publishing, 2007. Print.

Finnerty, John. Project Financing: Asset-Based Financial Engineering. 3rd ed. 2013. New York, NY: John Wiley & Sons. Print.

Manas, John. Napoleon on Project Management: Timeless Lessons in Planning, Execution, and Leadership, Nashville, Tennessee: Thomas Nelson Inc, 2008. Print.

Subramanyam, John. Financial Statement Analysis. 11th ed. 2013. New York, NY: McGraw- Hill Education. Print.

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