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What are the ‘Industry Standard’ preferences for DF?

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Estate Master Development Feasibility (DF) is specifically designed with a multitude of preferences that allow you to customise your project as required. But with such a huge amount of choices to make, what are the standard settings that most users apply? What are the suggested preferences if presenting your project’s finances to a bank?

The vast majority of preferences in Estate Master DF will be dependent on either your project or company. Others are dependent on a mutual understanding between parties evaluating the Cash Flow. So if the project is being evaluated by an external entity; please clarify as many of the terms and preferences with them as possible.

Below you can find a list of suggested ‘Industry Standard’ preferences related to escalation, taxation and hurdle rates that you can implement when using Estate Master DF.

Calculations

Escalation

Cost and Sales Escalation Method

  • Suggested Preference: Monthly Compounded Escalation based on Cashflow Period Years
  • This preference will escalate your Costs and Revenues based on 1/12 of your Annual Escalation Rate every month

Hurdle Rates

Discount Rates Annual to Rest Period Conversion

  • Suggested Preference: Per annum Nominal or per annum Effective
  • This is entirely up to the individual and can be configured either way.
  • Nominal will have a more generous effect on performance indicators, where effective is more conservative.
  • The definition of these two choices can be found on Page 44 of the DF Operations Manual and Page 45 of the DM Operations Manual.
  • Please ensure that any evaluating recipient of your cash flow is using the same Rest Period Conversion Preference.

IRR and NPV Calculation

  • Suggested Preference: The most standard of the 4 choices is includes financing costs but excludes interest and corporate tax.

Development Margin Calculations

  • Suggested Preference: The most standard of the 5 choices is calculating the margin on total development costs (inc selling costs).

Gross or Net Profit Performance

  • Suggested Preference: The most widely accepted preference is Based on Gross Development Profit (Before Profit Share)

Taxation

Tax Type

Tax Rate Type

  • This is entirely dependent on the region your project is in and the taxation laws that apply. For example, if your project is in Australia, you would select GST (Goods and Services Tax) Single Rates, whereas if it was in Europe, you would select ‘VAT (Value Added Tax)’

Tax Liability Calculation Type

  • Suggested Preference: AUTO – General Tax Rule is the most common calculation type, unless there is a specific requirement to consider the Margin Scheme for a particular project. This would need to be clarified by a Tax Specialist.
  • Please ensure that any evaluating recipient of your cash flow is using the same Tax Preference.

Liabilities and Reclaims

Tax Payment and Reclaim Frequency

  • Suggested Preference: This is entirely dependent on the size of project and company.
  • Larger projects and companies tend to Reclaim Tax Credits more frequently than smaller ones.

Disclaimer
This article is intended to provide general information only and has been prepared by Estate Master Pty Ltd without taking into account any particular project’s objectives or legal/taxation/financial situation. Readers of this article should, before acting on this information, consider the appropriateness of this information having regard to their specific project requirements. It is always recommended that you seek independent third party advice if you are unsure what particular set of calculation preferences is suitable for your specific project before making any financial investment or decision..

Date Published: 13 Feb 2014
Category: Hints and Tips

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