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Investment possibility for decision making Introduction

As there has been a 25 crore profit from business A as a manager it s imperative that certain investments are made to secure this capital and get a profitable return on investment. The market areas are diverse so as a manager I have thought to diversify the business in real estate, spa business, bank deposits etc. this is an analysis of the said investments in the next 5 years of the business

Objective
The main objective of this analysis and estimation is to find out what might be the rate of return of a 25 crore investment in the present market scenario. I have tried to put in the investment in 3 sectors which are most secure as of now if things- political economic scenario - remain unchanged.

Methodology
Using arithmetic mean we are estimating the average of the percentile profit we will be gaining in the next 5 years with the investment of 25 crore. Arithmetic Mean: When we are talking about an Average of something we are talking about arithmetic mean. To find the arithmetic mean we sum the values and divide by the numbers of observations. Advantages of Arithmetic mean: Firstly: this is a concept very clear to most people and intuitively clear and Secondly: every set data has a mean Disadvantages of Arithmetic mean: Firstly: this is affected by extreme data Secondly: This is a tedious process, as it has to use every single data available Thirdly: In the case of an open-ended data it is not that reliable

Rationale
The estimation of the profit/ investment is just that an estimation. Using arithmetic mean I hope to find at least the average profit that I will be making with my investment. Taking in the political, economic scenario, an average based on the ongoing profit percentage would give us a clue to what I might gain after 5 years of investing.

Submitted by : Shradha Rana, Roll No : 10530, KU Emba 2010.

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Areas of Investment
Real Estate: Kathmandu is experiencing a mini real estate boom as Nepalese real estate investors seek a safe have for their money, it is claimed. Government figures show the number of new apartments built in Kathmandu rose more than three-fold last year to 3,385 from 1,088 in 2007, as high land prices and poorly enforced planning laws made building upwards more attractive. According to the Nepal Land and Housing Association, land prices have risen by 300% since 2003. There has also been an increase in the number of estate agents in the capital city, Katmandu. Spa Business: The Spa business is growing in the asian subcontinent yearly by 50% to 70% as per the spa magazine. The aim of this business is to offer a world-class spa facility The objective of the spa business in Nepal: To operate a spa service, training, consultancy and the trading of related products. To facilitate the promotion of indigenous Himalayan therapies by means of spa service, training, consultancy and trading center. To offer spa treatments based on indigenous Himalayan therapies, which are combined with modern spa features. To preserve and promote the indigenous rich heritage that we have to offer. To provide therapy trainings to the people and develop their skills for income generation. To provide employment opportunities to the indigenous healers and the local people. To provide spa consultancy to the hotels/lodges and other establishments interested in operating spa. To promote and trade Himalayan handicraft across the globe. To facilitate in promoting Nepal as the hub of Indigenous Himalayan Therapies. In Nepal the current trend is that there are around 20 odd hotels and day spas, whose annual average profit ranges from Nrs50, 00,000.00 to Nrs 80,00,000.00

Submitted by : Shradha Rana, Roll No : 10530, KU Emba 2010.

-3which is increasing by 10% to 20% yearly. With the advent of Nepal Tourism Year 2011 they expect this profit to go up next year by 25% to 30%

Bank/ financial Investment: With the current liquidity crunch in the Nepalese banking/ financial sector, the financial institutions are offering a good return on the deposits. Some of the major banks are offering up to 11% to 12% interest on the bank deposit Fixed and 15% by secure finance companies.

Average Rate of Return in percentage

Calculating the average rate of return from the past 5 years scenario Note all the data are based on secondary data and hearsay and assumptions and has been rounded off for the ease of calculation

Real Estate
Targeted Location Durbarmarg Type commercial / rental Previous data: Year Cost per anna NRS 50,00,000.00 NRS 80,00,000.00 NRS 1,00,00,000.00 NRS 2,00,00,000.00 NRS, 3,00,00,000.00 Percent yearly 25% 60% 25% 100% 50% increase

2006 2007 2008 2009 2010

Therefore Average percent increase = 52% annually Purchase of 6 annas of land in durbarmarg = total of NRs 180,000,000.00 Approximate valuation after 5 years Year total cost of land 6 annas avg % increase

Submitted by : Shradha Rana, Roll No : 10530, KU Emba 2010.

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2010 2011 2012 2013 2014 2015

180,000,000.00 273,600,000.00 415,872,000.00 632,125,440.00 960,830,668.80 1,460,462,616.60

52%

After 5 years 18 crore investment should yield Nrs 1,460,462,616.60 crore, if the average rate of increment remains constant,

Spa Business
Financial investment Nrs 50,000,000.00 Partnership of 50% ownership Previous years data : Year Profit per year NRS 50,000.00 NRS 60,000.00 NRS 20,000.00 NRS 70,000.00 NRS, 1,00,000.00 Percent yearly 10% 20% -67% 250% 43% increase

2006 2007 2008 2009 2010

Therefore Average percent increase = 51% annually In a joint partnership if Nrs 50,000,000.00 is invested by 2010 and the spa starts earning profit by 2011

total investment annual return Year

and avg % increase 51%

2010 2011 2012

Investment period

50,000,000.00 75,500,000.0

Submitted by : Shradha Rana, Roll No : 10530, KU Emba 2010.

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2013 2014 2015

114,005,000.0 0 172,147,550.0 0 259,942,800.5 0

The figure 259,942,800 includes income , expenses, assets and liabilities as a whole as this is an aggregate amount and profit as well

Banking / Financial Institution

Due to the liquidity crunch in the present scenario the financial institutions are offering lucrative returns on period deposits. As this kind of offer was not available 5 years prior no such data have been submitted. And as this liquidity crunch is over the financial institutions will change this high rate of return on interest. There for as a Manager this is the right time to secure the remaining 20,000,000.00 in a secure financial institution.

total investment annual return Year

and avg % increase

2010 2011 2012 2013 2014 2015

20,000,000.0 15% 0 23,000,000.0 0 26,450,000.0 0 30,417,500.0 0 34,980,125.0 0 40,227,143.7 5

The total earned from a financial institution will be 40,227,143.75 after 5 years.

Conclusion
From the analysis above it brings to light that real estate has a high rate of return compared to other sectors. However, once the bubble is burst of over pricing this will not be the same. In the long run the Spa Business would definitely bring in more revenue if diversification is possible and the political scenario is stable in the country.

Submitted by : Shradha Rana, Roll No : 10530, KU Emba 2010.

-6The 5 year period deposit is very short term as it will be offered and on the table for a short period.

Submitted by : Shradha Rana, Roll No : 10530, KU Emba 2010.