Final Report - Asian Development Bank

42
Residual Value
TA 4721-PRC: Preparing the Shaanxi-Qinling Mountains Integrated Ecosystem Management Project
Final Report Appendix 7
Cash out 6,766 1,663 1,644 1,644 1,644 1,644 1,787 1,778
Investment 6,478 0 0 0
Operating cost 288 1,663 1,644 1,644 1,644 1,644 1,787 1,778
Net Cash Flow Before Income Tax -6,766 977 996 996 996 996 853 861
FIRR Before Income Tax 13.67%
FNPV Before Income Tax at 10% 1,916
Income Tax 0 157 162 162 162 162 126 128
Net Cash Flow After Income Tax -6,766 820 834 834 834 834 727 734
FIRR After Income Tax 10.90%
FNPV After Income Tax at 10% 450
240. The FIRR is however quite sensitive to changes in costs or incomes suggesting that the
Project needs to be closely assessed in terms of the assumptions that are applied. Central to these
are (i) the construction period and the need to avoid delays, (ii) the occupancy early in the project life,
(iii) demand for the day visitation services.
Table 21: Hot Spring Financial Analysis Sensitivity
Sensitive Analysis
Before Income Tax After Income Tax
FIRR NPV FIRR NPV
Operating Cost (10% up) 10.89% 460 8.67% -649
Operating Cost (20% up) 8.03% -997 6.34% -1,748
Operating Cost (30% up) 5.00% -2,453 3.83% -2,846
Revenue (10% down) 9.37% -317 7.44% -1,225
Revenue (20% down) 4.68% -2,551 3.57% -2,900
Revenue (30% down) -1.06% -4,784 -1.24% -4,575
241. The Economic analysis is however somewhat stronger with a EIRR of 23.33 % suggesting a
very good investment. Economically the investment is relatively insensitive to changes in revenues
and costs.
e. Implementation Arrangements
242. The subcomponent will be implemented by the existing Joint venture between LFF and
Shaanxi Tourism Department. Through its 51% ownership of the JV, the Hot Springs proposal brings
considerable tourism development and management experience of the Shaanxi Tourism Group
Corporation. The Shaanxi Tourism Group Corporation STCG is the largest single tourism stateowned
enterprise in Shaanxi 21 . In 2000, the Shaanxi Province Branch of the Bank of China signed a
deal with the Group to finance CNY1.8 billion ($218 million) of the Group’s major tourism investments
over the next five years through to 2005. This Group was founded in 1998 as a state owned company
with a registered capital of CNY3 billion ($36.14 million).
243. The Group is an investment and capital management company authorized by the provincial
government to engage in management and development of cultural and scenic tourism sites, travel
services, star-class hotels, bus companies and other tourism products. In conducting these functions,
the Group places an emphasis on servicing the tourism industry of Shaanxi Province – although the
Group has as well invested in other provinces and cities such as Beijing.
244. The Group and its subsidiary companies have engaged in a variety of tourism services
including dining, accommodation, travel agencies, transportation, entertainment, and the management
21 Information taken from: “Business Plan of Beijing Shaanxi Mansion Company Ltd. & Days Hotel & Suites
Beijing & Regal Place Theatre Restaurant Chinese Cuisine House”, February 1, 2005 (Available on the
Internet).