FinancialAssessmentandRisk Analysis - Skemman Assessent an… · Special thanks to my supervisor Páll Jensson, professor at Reykjavik University for his ... long term parking and

Financial Assessment and RiskAnalysis

for Airport Parking Investment

Anna Sigga Lúðvíksdóttir

Thesis of 30 ECTS creditsMaster in Science(M.Sc) in Engineering Management

December 2016

Financial Assessment and Risk Analysis


Thesis of 30 ECTS credits submitted to the School of Sience and Engineering at ReykjavikUniversity in partial fulfillment of the requirements for the degree of

Master of Sience (M.Sc.)in Engineering ManagementDecember 2016

Supervisor:Páll Jensson, Ph.DProfessor, School of Sience and Engineering at Reykjavik University, Iceland

Examiner:Þorbjörg Sæmundsdóttir

CopyrightAnna Sigga Lúðvíksdóttir

December 2016



Thesis of 30 ECTS credits submitted to the School of Sience and Engineering at ReykjavikUniversity in partial fulfillment of the requirements for the degree of

Master of Sience (M.Sc.)in Engineering Management

December 2016

Student:


Supervisor:

Páll Jensson

Examiner:

Þorbjörg Sæmundsdóttir

The undersigned hereby grants permission to the Reykjavík University Library to repro-duce single copies of this Thesis entitled Financial Assessment and Risk Analysis forAirport Parking Investment and to lend or sell such copies for private, scholarly or sci-entific research purposes only. The author reserves all other publication and other rights inassociation with the copyright in the Thesis, and except as herein before provided, neitherthe thesis nor any substantial portion thereof may be printed or otherwise reproduced inany material form whatsoever without the author’s prior written permission.

Date





Abstract

The increase of passengers to and from Iceland has been enormous last years and that callsfor a major restructure at Keflavik Airport. There has been pressure on Isavia, that runsthe airport, to improve the parking options at the airport. A proposal for a parking garageat Keflavik Airport has been published. The main purpose of this thesis is to find the mostfeasible option for Isavia to operate the parking garage. This thesis covers the financial fea-sibility for short term (10 years) and long term (20 years) with respect to the assumptionsin the model. The assumption variables that have the most effects are the predicted initialrevenue for first year of operation and the investment cost. Three operation models will becompared, i.e. 1) if Isavia builds and operates the parking garage, 2) if Isavia builds theparking garage but outsources the operation to a contractor and 3) if Isavia outsources theland to a contractor who builds and operates the parking garage. To compare the models,net present value, external rate of return and internal rate of return are calculated for allthe operation models.

This study is intended as a tool for Isavia to use, for further studies, for this investmentproject. The variable assumptions can be changed in the model and Isavia can adapt themodel to different circumstances and scenarios as applicable. The results give a good imageof what operation model is the most profitable for given assumptions in the model withrespect to profit and risk.

Keywords: Financial Assessment, Profitability, Risk Analysis, Engineering Management,Parking Garage, Keflavik Airport

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Arðsemismat og Áhættugreining

á Bílastæðahúsi við Keflavíkurflugvöll


Útdráttur

Farþega fjölgun á Keflavíkurflugvelli hefur verið mikil síðastliðin ár. Þessi fjölgun leiðiraf sér að mikil uppbygging þarf að eiga sér stað á Keflavíkurflugvelli. Það hefur veriðmikill þrýstingur á Isavia, sem rekur flugvöllinn, að bæta bílastæði og bílastæðaþjónustuvið flugvöllinn. Tillaga að bílastæðahúsi við Keflavíkur flugvöll hefur verið lögð fram. Mark-mið rannsóknarinnar er að meta hvaða rekstarlíkan er arðbærast fyrir Isavia við að rekabílastæðahúsið. Rannsóknin fjallar um arðsemi fjárfestingarinnar til skamms tíma (10 ára)og til lengri tíma (20 ára) með tilliti til forsenda í líkaninu. Þær breytilegu forsendur semhöfðu mest áhrif á líkanið voru upphafstekjur á fyrsta rekstrarári og fjárfestinga kostnaður.Þrjú rekstrarlíkön verða borin saman, 1) Isavia byggir og rekur bílastæðahúsið, 2) Isaviabyggir bílastæðahúsið en leigir reksturinn út og 3) Isavia leigir landið og leigjandi byggir ogrekur bílastæðahúsið. Til að bera saman mismunandi rekstrarlíkön var fjárfesting núvirt oginnri- og ytri vextir voru reiknaðir fyrir öll rekstrarlíkönin.

Það er nauðsynlegt að gera grein fyrir því að rannsóknin er verkfæri fyrir Isavia til að nýtatil frekari greininga á rekstrarlíkani fyrir bílastæðahúsið. Hægt er að breyta forsendum ílíkaninu og Isavia getur aðlagað líkanið að mismunandi aðstæðum ef á við. Niðurstöður gefagóða mynd af því hvaða rekstarlíkan er hagkvæmast með tilliti til hagkvæmni og áhættu.

Lykilorð: Arðsemismat, Arðsemi, Áhættugreining, Rekstrarverkfræði, Bílastæðahús, Ke-flavíkurflugvöllur, Isavia

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Acknowledgement

Special thanks to my supervisor Páll Jensson, professor at Reykjavik University for hisguidence, assistance and support in this study.

Special thanks to my contacts at Isavia, Gunnhildur Vilbergsdóttir, commercial manager,and Sævar Garðarson, facility manager, for their assistance and data collecting. Manythanks to Isavia for the financial support.

Many thanks to my familiy and friends, Helga Lilja Aðalsteinsdóttir, Pétur Friðrikssonand Stefán Jessen for proofreading this study.

Last but not least, many thanks to all of my family and friends for their support dur-ing this study.

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Contents

Abstract i

Útdráttur ii

Acknowledgement iii

Contents iv

List of Figures vi

List of Tables vii

1 Introduction 11.1 The main purpose of the study . . . . . . . . . . . . . . . . . . . . . . . . . 21.2 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2 Methods 52.1 Feasibility studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2.1.1 Net present value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.1.2 Internal rate of return . . . . . . . . . . . . . . . . . . . . . . . . . . 62.1.3 External rate of return . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2.2 The financial assessment model . . . . . . . . . . . . . . . . . . . . . . . . . 72.2.1 Assumption Summary . . . . . . . . . . . . . . . . . . . . . . . . . . 92.2.2 Investment and financing . . . . . . . . . . . . . . . . . . . . . . . . 92.2.3 Operation statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 92.2.4 Cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.2.5 Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.2.6 Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2.3 Risk analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3 Assumptions for cost calculation 123.1 Investment cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.2 Operation cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

4 Data for revenue prediction 144.1 Revenue for case 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154.2 Revenue for case 2 and 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

5 Other assumptions 19

6 Results 21

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6.1 Results for case 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216.2 Results for case 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236.3 Results for case 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256.4 Risk analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276.5 Summary of the results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

7 Discussion and conclusions 357.1 Future work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

References 37

A Investment cost 38

B Operation cost 38

C Model calculations 39

List of Figures

1 Annual number of passengers through the airport from 2004-2015 [6] . . . . 12 The forecasted increase of passenger from 2016-2038 . . . . . . . . . . . . . 23 The connections between components in the financial assessment model. [7] 84 The correlation between number of Icelanders travelling through Kef airport

and the number of parking spaces used in 2015. . . . . . . . . . . . . . . . . 155 The accumulated net present value for both total cash flow and capital and

net cash flow and equity in million ISK. . . . . . . . . . . . . . . . . . . . . 226 The MIRR for both total cash flow and capital and net cash flow and equity 227 The cash flow for both total cash flow and capital and net cash flow and

equity in million ISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 The net present value for both total cash flow and capital and net cash flow

and equity in million ISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 The MIRR for both total cash flow and capital and net cash flow and equity 2410 The cash flow for both total cash flow and capital and net cash flow and

equity in million ISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2511 The net present value for both total cash flow and capital and net cash flow

and equity in million ISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2612 The MIRR for both total cash flow and capital and net cash flow and equity 2613 The cash flow for both total cash flow and capital and net cash flow and

equity in million ISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2714 Sensitivity analysis of the net present value of equity in case 1 . . . . . . . . 2815 Sensitivity analysis of the external rate of return of equity in case 1 . . . . . 2816 Sensitivity analysis of the net present value of equity in case 2 . . . . . . . . 2917 Sensitivity analysis of the external rate of return of equity in case 2 . . . . . 2918 Sensitivity analysis of the net present value of equity in case 3 . . . . . . . . 3019 Sensitivity analysis of the external rate of return of equity in case 3 . . . . . 3020 Risk points for all the cases . . . . . . . . . . . . . . . . . . . . . . . . . . . 3421 Summary sheet in case 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4022 Summary sheet in case 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4123 Summary sheet in case 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4224 Investment sheet in case 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4325 Operation sheet in case 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4426 Cash flow sheet in case 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4527 Balance sheet in case 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4628 Profitability sheet in case 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

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List of Tables

1 Three different operating models compared . . . . . . . . . . . . . . . . . . 32 The cost Isavia pays in each case . . . . . . . . . . . . . . . . . . . . . . . . 123 The correlation between no. of Icelanders travelling abroad through Keflavik

airport and the use of P3 - long term parking spaces . . . . . . . . . . . . . 144 The proportion between various types of parking spaces . . . . . . . . . . . 165 The proportion used to estimate the revenue . . . . . . . . . . . . . . . . . 166 The price per day for long term parking - P3 . . . . . . . . . . . . . . . . . 167 Partition of the investment financing over the construction time . . . . . . . 198 Partition for the financing of the investment in million ISK . . . . . . . . . 199 Results for case 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2110 Results for case 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2311 Results for case 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2512 Scenario analysis for case 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3113 Scenario analysis for case 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3214 Scenario analysis for case 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3315 Risk point for all the cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3416 Breakdown for investment cost . . . . . . . . . . . . . . . . . . . . . . . . . 3817 Breakdown for operation cost . . . . . . . . . . . . . . . . . . . . . . . . . . 3818 Number of Bílstæðasjóður parking spaces [3] . . . . . . . . . . . . . . . . . . 39

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1 Introduction

In recent years there has been an enormous increase in the number of tourists travellingto and from Iceland. The total number of travellers through Keflavik Airport 2015 were4, 86 million, according to Isavia. Long term predictions estimate that the number oftravellers through Keflavik Airport will reach 20 million by 2040 [9], thus the increase willbe enormous. Figure 1 shows the annual number of passengers since 2004.

Figure 1: Annual number of passengers through the airport from 2004-2015 [6]

Isavia, which is a public corporation, operates the international airport at Keflavik as wellas other Icelandic domestic airports. Its role is to operate airports and provide air naviga-tion services, and to be the foundation for air travel in Iceland [5].

In order to accommodate and manage the increase in travellers, Isavia has released a mas-terplan. According to the masterplan, Keflavik Airport will be able to accommodate 14million passengers in 2040, assuming the current distribution of flights to and from theairport and 25 million passengers if the flights are spread out more evenly throughout theday [9]. According to newest predictions the number of passengers will reach 20 millions in2040 [12].

1

Figure 2: The forecasted increase of passenger from 2016-2038

Isavia operates the parking at Keflavik airport. Isavia offers a long term parking, shortterm parking as well as renting spaces to car rentals. With the increase in passengernumber in coming years, the use of parking around the airport will increase accordingly.The masterplan includes a proposal for the building of a parking garage which would servelong term parking and car rentals. The proposed parking garage would consist of 1700parking spaces in a 42.000 m2, five floor structure.

1.1 The main purpose of the study

Isavia has three ideas for operation models of the parking garage. The main purpose of thisstudy is to evaluate what operation model is most economically advantageous for Isavia.Table 1 describes the cases for each operation model.

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Operation model DescriptionCase 1 Isavia designs, builds and operates the

parking garageCase 2 Isavia designs and builds the parking

garage. The operation of the parkinggarage will be outsourced to a contractorfor 10 to 20 years, where the contractorpays a fixed rent every month and a rev-enue based rent with fixed proportion ofthe revenue each month.

Case 3 Isavia designs the parking garage but out-sources the land to a contractor for 10to 20 years that builds and operates theparking garage. The contractor pays fixedrent for the land and fixed proportion ofits revenue to Isavia each month.

Table 1: Three different operating models compared

A financial feasibility analysis will be applied on these three models to evaluate which op-eration model is the most feasible for Isavia to use with respect to profit and risk. Thefinancial feasibility analysis will cover short term and long term periods, where short termis 10 years of operation lifetime and long term is 20 years of operation lifetime.

The research questions in this study are:

• What operation model is most profitable for Isavia?

• What operation model has the highest risk?

• What operation model is the most feasible for Isavia to use with respect to profit andrisk?

This study is intended as a tool for Isavia to use for further studies. The variable assump-tions can be changed in the model and Isavia can adapt the model to different circumstancesand scenarios as applicable. The results give a good image of what operation model is themost profitable for given assumption in the model with respect to profit and risk.

1.2 Overview

The first chapter in this thesis is an introductory where the project is defined and the re-search questions are stated, i.e. the operation models are defined. It also covers a shortdescription of Isavias role.

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In chapter two the theory for feasibility studies is defined and the financial feasibility modelis described, that chapter covers the net present value, internal rate of return, externalrate of return and financial ratios. The financial feasibility model was designed by PállJensson Professor at Reykjavik University and that model will be used in this thesis andis described in chapter two. For information this chapter in written in co-operation withHrönn Skaptadóttir, the author of the thesis Financial Assessment and Risk Analysis forAirport Hotel.

In chapter three the cost assumptions are defined. The investment cost, variable opera-tion cost and the fixed operation cost is covered in this chapter.

In chapter four the evaluation for revenue is described and the data for revenue predic-tion is defined. A detailed description for revenue calculation for case 1 is in this chapteralong with the description for revenue in case 2 and 3.

The assumptions made in the model for all the cases, apart from revenue and cost, aredefined in chapter five. Assumption like, proportion of loan and equity, loan managementfee, loan repayment period, income taxes, depreciation, debtor changes etc.

In chapter six the results are defined. The results for all the cases are displayed in thischapter and a summary of the result is at the end of this chapter.

A discussion and conclusion are defined in chapter seven. A further discussion of theresults, from chapter six, and what Isavia should do in the future are introduced.

In the appendices, a further breakdown for the investment cost and the operation cost,are displayed. A figure of the summary sheets for each case are displayed along with anexample of the model calculation, i.e. the sheets for calculation in the model for case 1 over10 years of operation lifetime. All the assumptions made in the model are displayed on thesummary sheet.

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2 Methods

When a business idea is in its first stages it is important to do an analysis to find out if theinvestment is financially viable or not. A financial feasibility analysis is a powerful tool toevaluate the profitability of the investment [2].

2.1 Feasibility studies

When investing in a project it is not enough to meet special technical and other relevantrequirements, it also needs to be profitable. The concept ’return on investment’ is appro-priate for this investment project. Isavia expects the cash flow from the operation to besufficient to pay for the investment- and operation cost along with an acceptable rate ofreturn [1].

A financial feasibility analysis is an analytical tool to evaluate if an investment is prof-itable or not [2]. When evaluating investment it is important to consider different varibleslike, revenues, cost, taxes, financing etc. Thus, a financial assessment model will be used inorder to determine which of the aforementioned models is the most feasible option for Isaviato build and operate the parking garage. The three models will be compared with respectto revenue, cost and risk. When estimating the risk it is necessary to find the variable thathas the highest impact on the results and will have the biggest effect on the operation.

There are many ways to evaluate an investment project like this. The five basic and mostcommon types of methods has been categorized into five categories, the categories are [13]:

• Net present value methods (NPV)

• Rate of return methods

Internal rate of return (IRR)

External rate of return (MIRR)

• Ratio methods

• Payback methods

• Accounting methods

In this financial assessment the NPV, IRR and MIRR will be used to compare the modelsand decide which way is the most economical advantageous for Isavia. These methods willbe described as follows.

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2.1.1 Net present value

The Net present value (NPV) is the value of the investment at the end of given period, i.e.the present value of the in cash flow and out cash flow over that period. The NPV indicateswhether the investment has an acceptable return over the period.

To calculate the NPV for the investment anestimate of the acceptable return or minimumacceptable rate of return (MARR) is needed. The MARR is the rate of return that theinvestor could get when investing in other investments. Thus, when comparing differentinvestment options the MARR is estimated. If the investment is high risk the investor willset the MARR higher than in a low-risk investments. By investing in a high risk invest-ments it is reasonable for the investor to expect higher return. The MARR is then usedas a discounting rate, for discounting the cash flow over the given period. To calculate theNPV following formula is used [2]:

NPV (r) =T∑

t=1

Ct

(1 + r)t(1)

Where

T is the number of years

r is the discounting rate (MARR),

Ct is the cash flow during the period t

The results from the NPV calculations are then examined and if,

• NPV (r) < 0; Reject the investment project

• NPV (r) = 0; Remain indifferent to the investment

• NPV (r) > 0; Accept the investment project

2.1.2 Internal rate of return

The internal rate of return(IRR) is calculated to evaluate if the investment is acceptable ornot. The internal rate of return can be used to compare the financial strength for variousinvestments.

IRR is the discounting rate when NPV is set to zero. When the investment is discounted,IRR shows when NPV is zero.

To calculate the IRR following formula is used [2]:

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NPV (r∗) =T∑

t=1

Ct

(1 + r∗)t= 0 (2)

Where

T is the number of years

r∗ is the internal rate of return (IRR),

Ct is the cash flow during the period t

The results from the IRR calculations are then examined and if [2],

• IRR > MARR; Accept in the investment project

• IRR = MARR; Remain indifferent to the investment

• IRR < MARR; Reject the investment project

2.1.3 External rate of return

The external rate of return which is also called; the modified internal rate of return (MIRR)is calculated to evaluate if the investment is acceptable or not.

The difference between MIRR and IRR is that when calculating IRR, it is always assumedthat the reinvestment rate is the same as the calculated IRR at the end of the project lifecycle. The MIRR assumes that the reinvestment rate is fixed by the user [10].

In that case the reinvestment rate is more carefully estimated and often the MARR is usedas the reinvestment rate when calculating MIRR. In the past IRR has been more commonlyused than MIRR. The reason for that could be that IRR is a method that has been usedfor long time but MIRR is more recent method [10].

Since the reinvestment rate can be fixed by the user when calculating MIRR, it is con-sidered to be more conservative than the IRR. Thus the MIRR will be used for comparisonin this study. The results from the MIRR calculations are examined the same as the resultsfrom the IRR calculations in ch. 2.1.2.

2.2 The financial assessment model

The structure of the financial assessment model was designed by Páll Jensson professor atReykjavik University. The model was developed with investments in small and middle scaleindustries in mind. This model has been used in feasibility studies in Iceland as well as

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other countries.

The model is built on given assumption, data from Isavia and other variables. The timeunit is a year and each case will cover short term and long term periods.

The main components of the model are shown in figure 3. Each component is implementedin a separate Excel sheet in the same workbook. The sheets are 2.2.1 Assumption summary,2.2.2 Investment and financing, 2.2.3 Operation, 2.2.4 Cashflow, 2.2.5 Balancesheet, 2.2.6Profitability and the charts for calculations are dislayed on the last sheet and will be definedin the results. A detailed description of each sheet is in the following subsections. [7]

It is assumed that the construction and investment takes two years. After that, the oper-ational lifetime is 20 years. The results for 10 years (short term) and 20 years (long term)will be calculated, for all the cases.

Figure 3: The connections between components in the financial assessment model. [7]

An example of calculations in each excel sheet in the financial assessment model is inappendix C.

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2.2.1 Assumption Summary

All the assumptions for the following calculations are in this excel sheet. The financial cost,the estimated revenue and operational cost, depreciation for the investments, the propor-tion between equity and loan, interests of loan, loan management fees and loan repaymentperiod are displayed on this sheet. The discount rate (MARR) for the equity and the dis-count rate for the total invest is required for this investment and are displayed on this sheet.

The main results are displayed on this sheet, both for 10 years and for 20 years. The mainresults are from the profitability sheet, described here below in ch. 2.2.6. The net presentvalue(NPV), internal rate of return(IRR) and the modified internal rate of return(MIRR)for the investment, i.e. both of total capital and of equity are used for comparison and aredisplayed on this sheet.

The color coding is for the user to determine whether a variable is typed in the modelor if it is a calculated variable. All the assumption variables are blue and the result fromanother sheet is yellow. A description of all the assumption made in this sheet for revenue,investment cost, long term prediction and other assumptions is to find in ch. 3, ch. 4 andch. 5.

2.2.2 Investment and financing

This sheet shows the breakdown of the investment, that is how much is estimated in build-ings, equipment and design investments. The investments are depreciated each year withrespect to the initial value of the investment and that will be used to calculate the incometaxes.

This sheet also shows the financing, taht is how high loan is required with respect to equity.The repayment of the loan is calculated for the time period. The principal is calculated foreach time period by subtracting the repayment from last year principal. Finally interest foreach time period is calculated with respect to last year principal.

2.2.3 Operation statement

This sheet shows the EBITDA(operating surplus), EBIT(Operating gain/loss), EBT(profitbefore tax), profit after tax and net profit/loss. The revenue and operating cost is used tofind the EBIDTA, i.e. the difference between the revenue and operating cost. The differencebetween the EBIDTA and depreciation is the EBIT, the difference between the EBIT andloan management fees is the EBT.

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The taxable profit is calculated. First the loss transfer is found by choosing all years wherethe EBT is negative. Then taxable profit is found by adding the loss transfer to next yearsEBT to find the taxable profit. When taxable profit has been calculated the profit aftertax is calculated by subtracting the income tax from taxable profit. At the end, if Isaviadecides to pay dividend the net profit/loss is calculated by subtracting payed dividend fromthe profit after tax. The calculated Net Profit/Loss is added to the Profit and Loss Balanceon the Balance sheet, described in ch. 2.2.5.

2.2.4 Cash flow

In this sheet the cash flow is calculated. The operating surplus(EBIDTA) is used to calculatethe cash flow before tax.

First the debtor changes are found by subtracting last year outstanding receivables fromthis year outstanding receivable. The outstanding receivable is calculated on the balancesheet as debtors.

Then the cash flow before tax is found by subtracting the debtor changes from the op-erating surplus from the operation sheet.

Cash flow after tax is found by subtracting paid taxes, from the year before, from cashflow before tax.

The net cash flow is found by subtracting repayments of loans and interests from the cashflow after tax. Sometimes the net cash flow is refered to the free cash flow, but this studyrefers to net cash flow.

To find the total cash movement working capital is added to the net cash flow and then thepaid dividend is subtracted.

The source and allocation of funds in the balance sheet summarizes the key componentsfrom the model to perform an error check for the model.

2.2.5 Balance

On this sheet figures are gathered from the investment, operation and cash flow sheets.These figures are used to calculate year by year the current assets, total asset, current lia-bilities, total debt and total capital.

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This sheet is used as verification tool for error check, the difference between total assetsand total debts and capital shall be zero for the verification. If the difference between thesetwo variables is not zero the model has an error.

2.2.6 Profitability

This sheet calculates the net present value, internal rate of return and external rate ofreturn of the total cash flow and capital on one hand and the net cash flow and equityon the other hand. That shows for each year if the investment is profitable and when theinvestment starts to return profit. The financial ratios are also calculated on this sheet.

The financial ratios show when the investment is stable. They indicate if there is enoughequity to pay back the loans, if the equity is sufficient for the operation to be stable etc.

2.3 Risk analysis

The results from the financial assessment are considered to be the most likely results. Thereare more scenarios that are valuable for the investor to evaluate to see what happens underdifferent circumstances. In that case a risk analysis is a powerful tool helping the investor toincrease the probability of success [11]. Many various methods can be used in risk analysis,i.e. scenario analysis, sensitivity analysis, simulation etc.

In this study, sensitivity analysis and scenario analysis will be used. The variable thathas the highest impact on the results was found using sensitivity analysis [11]. After thata scenario analysis is used to see what happens in best case scenarios and worst case sce-narios, i.e. an optimistic scenario and a pessimistic scenario is created. To estimate thescenarios the ±20% variability in the long-term prediction Isavia has made will be used [12].

To summerize the results a "risk point method" was developed by the author of this study.The results from the scenario analysis was used to get a risk point, on the scale 1-10, foreach case and then it was examined with respect to profit or the net present value. Adetailed description of this method is in ch. 6.5.

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3 Assumptions for cost calculation

The cost from operation and investment is not the same in all the cases. The followingtable demonstrates the cost Isavia needs to pay in each case.

Case Operation cost Investment cost1 Yes Yes2 Partly yes3 No Design only

Table 2: The cost Isavia pays in each case

A further description for the investment- and operation cost can be found in chapters 3.1and 3.2.

3.1 Investment cost

The total building and design cost of the parking garage is estimated by Isavia to be ISK8.930 millions. Equipment cost is estimated at ISK 50 millions. For further breakdown ofbuilding, design and equipment cost, see table 16 in appendix A.

3.2 Operation cost

Bílastæðasjóður runs the parking garages in Reykjavik (Reykjavik car park). The fixedoperation cost for the parking garage was estimated from Reykjavik car park operationcost. The cost items in their 2015 annual reports for operation, used in this project, are:

• electricity

• heating

• maintenance

• other cost

The operation cost of each parking space was calculated based on Reykjavík car park overallcost of parking garages divided by total of parking spaces. This number was then used toestimate the cost of operation of the 1700 parking spaces in the parking garage. A list ofReykjavíks parking garages and the number of parking spaces is shown in appendix B, table18.

The real estate value of the parking garage at Hverfisgata Reykjavík [8] will be used to

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estimate the real estate value of the parking garage. The estimated real estate tax is calcu-lated based on the estimated size of the parking garage and real estate tax in Sandgerði [15].

The variable operation cost are total salary expenses, including taxes, pension and othersalary related cost, for employees to monitor the parking garage, office cost and managementcost. The variable operation cost is estimated as 20% of the operation cost as a startingpoint. The long term prediction will be used to determine the variable operation cost overthe project lifetime since the correlation between the number of Icelanders travelling abroadand the number of cars parked at the long term parking in Keflavik airport are high. Thecorrelation is described in chapter 4.

Further breakdown of operation cost is in appendix B, table 17.

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4 Data for revenue prediction

Isavias long term predictions, to 2040, regarding the growth in number of passengers trav-elling through Keflavik airport [12] will be used to estimate the revenue over the wholeplanning period.

To see if the increase of passengers at Keflavik airport has an effect on the number ofparking spaces used a correlation function was applied. Isavia has collected various dataon parking and income through the years. Based on this data it is possible to find thecorrelation between the number of Icelanders travelling abroad [4] and the number of carsparked at the long term parking in Keflavik airport, P3. The following table demonstratesthis correlation:

Year Correlation2015 95%2014 97%2013 93%2012 94%2011 96%

Table 3: The correlation between no. of Icelanders travelling abroad through Keflavikairport and the use of P3 - long term parking spaces

The correlation between the number of travellers and the number of cars parked at P3where found by using the following correlation function [16].

Correl(X, Y ) =∑

(x − x)(y − y)√∑(x − x)2 ∑

(y − y)2 (3)

Where x is the number of Icelanders travelling through Keflavik airport, y is the numberof cars parking in P3, x is the sample x average and y is the sample y average. Figure 4shows the correlation between x and y in 2015.

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Figure 4: The correlation between number of Icelanders travelling through Kef airport andthe number of parking spaces used in 2015.

At this time Isavia has a contract with three car rentals. The contract agreements stipulateswhat the car rentals pay Isavia rent for the space inside Keflavik airport and a fixed amountper car rental contract. The correlation between the numbers of car rental contracts andforeign travelers through Keflavik airport is high, or 96% in 2015 using the aforementionedequation 3.

Since the correlation between the above mentioned variables are so high, the long termpredictions regarding the escalation in number of passengers travelling through Keflavikairport will be used to estimate the revenues.

4.1 Revenue for case 1

To estimate the revenue for the parking garage over the next 20 years of operation, the longterm prediction and the average time each car stays in the parking space 2015, will be used.

The proportion between numbers of various parking options today is shown in the followingtable. The total number of parking spaces in use when estimating this is 2809.

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Type of parking space No. of parking spaces ProportionP1 Short term 247 9%P2 Short term 234 8%P3 Long term 1975 70%Car rentals 353 13%

Table 4: The proportion between various types of parking spaces

Table 4 shows that P3 has the highest proportion of parking spaces and according to IsaviaP3 gives the most revenue. To maximize the revenue more spaces for long term parkingneeds to be stated in the parking garage. With respect to the assumption in the model, theabove proportion does not give a good result thus it is needed to maximize the revenue. Ifthe number of P1 and P2 is set to zero, for the given assumption, it maximizes the revenue.So, in this model it’s assumed - that the parking garage will only have long term parkingand parking spaces for car rentals. Following table shows the proportion between numberof spaces for long term parking and spaces for car rentals.

Type of parking No. of parking Current Proportion usedspace spaces today proportion in the model

P3 Long term 1975 85% 60%Car rentals 353 15% 40%

Table 5: The proportion used to estimate the revenue

For the model to be profitable a stable revenue from the car rentals is needed as it is esti-mated that the car rentals pay fixed price for each parking space regardless of utilization.Thus the proportion for car rentals needs to be higher than the current proportion.

It was estimated, in co-operation with Isavia, that the price for long term parking in thegarage, would be 40% higher than the current price. Following table shows the price forlong term parking.

No. of Price per Price per day (ISK)days day (ISK) Parking garage

First 7 days 1250 17508 − 14 days 950 133015 − 21 days 800 1120

Table 6: The price per day for long term parking - P3

Isavias counting data, from 2015, for long term parking was used to estimate the revenuewith respect to new price for each week. The counting data for long term parking showsthe number of cars parked at P3 for every time unit, where time unit is number of days,

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from 1-21 days. For example x number of cars are parked for two days and y number ofcars are parked for three days. The counting data for long term parking and revenue atKeflavik parking will not be presented because of a confidentiality. The car rentals will beable to rent parking spaces in the parking garage. The car rentals will pay fixed rent for apredetermined number of parking spaces. In cooperation with Isavia it was estimated thatthe price for car rentals will be 1200 ISK per day for each parking space.

The parking garage counts 1700 parking spaces but when estimating this, the current num-ber of parking spaces is 2328 for long term parking and car rentals. Thus it is needed tofind the proportion between the numbers of parking spaces, i.e.:

Proportionparking spaces17002328 = 73% (4)

This proportion is used to have a similar utilization in the parking garage and is in P3-longterm parking. This proportion and the long term prediction is then used to estimate theannual total revenue. This proportion is only used to estimate the revenue for long termparking since the current counting for P3 is used to estimade the revenue for longtermparking in the parking garage but not for the car rentals. Following steps summarizes therevenue calculations.

1. Raise the price for long term parking by 40%

2. Calculate the annual revenue from long term parking by using the counting for longterm parking 2015

3. Multiply the annual revenue from long term parking with the proportion for parkingspaces (eq. 4)

4. Multiply the result from item 3 with the proportion for long term parking, i.e 60%

5. Calculate the annual revenue from car rentals by multiplying price · 1700 · 40% · 365

6. Calculate the total revenue for the parking garage by add together item 4 and 5

7. Estimate the future revenue by using the long term perdiction, with 2016 as a firstyear

The revenue for the first operation year, the year of 2019, is estimated as 1.170 MISK. Adata from Isavia regarding counting in long term parking was used to estimate the revenuefor long term parking but will not be presented in this project since the data is confidential.

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4.2 Revenue for case 2 and 3

In case 2 and 3 Isavia will not operate the parking garage. In revenue prediction for case 2and 3 the financial assessment model for case 1 was applied to find the tolerance limit forthe contractor.

The limit was evaluated by testing assumption, both cost and revenue, for the contrac-tor in the financial assessment model built for case 1. That is the model from case 1 wasused to find the tolerance limit for the contractor and it was found where the IRR and NPVis similar to Isavias profit for case 1.

The revenue is a mix of a fixed rent and revenue related to income in both cases. Inboth cases revenue related income is calculated of all income that exceeds the fixed rent,i.e. if the revenue does not exceed the fixed rent, the revenue related income will be zero.For example, if the income is 400, the fixed rent is 100 and the revenue related income is10%. Isavias revenue is calculated from the difference between the income and fixed rent,i.e. 400−100 = 300. The revenue related income is calculated as 300∗10% = 30. The totalrevenue gives 100 + 30 = 130.

Based on the results from financial assessment for the contractor in case 2, the fixed rentwill be ISK 1.130 million per year and the revenue related income will be 45% of the incomefrom operation, exceeding the fixed rent, using the same income as in case 1. That willwork since the operation cost is lower for the contractor because it is expected for Isavia topay the real estate tax and maintenance.

Based on the results from financial assessment for the contractor in case 3, the fixed rentwill be ISK 15 million per year and the revenue related income will be 2% of the incomefrom operation, exceeding the fixed rent, using the same income as in case 1. The contractorwill build and invest in the equipment and pay all the operation cost, both fixed and variable.

In both cases Isavia can change the fixed rent and the revenue related income too seewhat maximizes their revenue at any time period.

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5 Other assumptions

The assumptions made in this chapter were estimated by Isavia, are common methods inIceland and are according to Icelandic laws.

The construction period is estimated two years. The partition for the investment costis divided over two years of construction time. Table 7 shows the division of the totalinvestment cost during the two years of construction.

Investment 2017 2018Building 50% 50%

Equipment 0% 100%Desing 100% 0%

Table 7: Partition of the investment financing over the construction time

Isavia estimates that the financing for the investment will be 70% equity and 30% loans.The partition for the finance is shown in table 8.

Finance Proportion Amount in year 1 Amount in year 2Equity 70% 3.215 3.108Loan 30% 1.378 1.332

Total financing 100% 4.593 4.440

Table 8: Partition for the financing of the investment in million ISK

The loan management fee is estimated to be 0, 2%, the interests are 7% and the loan re-payment period is 20 years, according to Isavia. Isavia only pays the design cost in case 3,like stated here above, and that will be financed with 100% equity.

The minimum acceptable rate of return (MARR) for Isavia is 7, 2% overall. Isavia runsthe airport, including the shopping area at the airport and the MARR for shopping areais 9, 1%. Since the parking garage is not a shopping area the MARR for total capital is7, 2%. The MARR for equity is estimated to be 10% since it is reasonable for the investorto demand a higher return on the equity.

The depreciation is according to common methods in Iceland, i.e. depreciation for buildingsis 4% each year, for equipment 15% each year down to 10% of its original value and 20%for design. According to icelandic laws the income tax is 20% [14].

The debtor changes are 112 = 8, 3% since the payments from credit cards are settled to

the operator about month after the transaction and it is assumed that payments from the

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last month of the year are debtor changes, for case 1. In case 2 and 3 the debtor changesare the same as in case 1. A part of Isavia revenues is related to income in cases 2 and 3,thus Isavia does not get the rent from the revenue related income until later, the debtorchanges was estimated as one month.

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6 Results

To evaluate the result from the financial assessment a comparison of the results on all threecases is needed. The NPV, MIRR, and IRR will be compared for the total capital and theequity.

The results from the financial feasibility study for all three cases will be presented. Likementioned earlier the MIRR and the NPV will be used for this comparison since the MIRRis considered to be more conservative than the IRR [10].

6.1 Results for case 1

The following table and figures displays the results for case 1.

10 years Total capital Equity 20 years Total capital EquityNPV (MISK) −2.347 −2.392 NPV 2.082 131

IRR 2% 2% IRR 10% 10%MIRR 4% 5% MIRR 8% 10%

Table 9: Results for case 1

Table 9 shows that the investment is not profitable after 10 years. The NPV is negative andthe MIRR has not reached an acceptable return. However, in 20 years the investment haspaid off, the NPV for both equity and total capital is positive and the MIRR has reached anacceptable return. Like stated earlier in this study the minimum acceptable rate of returnis 7, 2% for total capital and 10% for equity.

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Figure 5: The accumulated net present value for both total cash flow and capital and netcash flow and equity in million ISK.

Figure 5 shows that in the year 2033 the investment has paid off. The first year of operationis in 2019, like the above figure shows the NPV value drops the first two years, duringconstruction time. After the operation has started the NPV increases and in 2033 the NPVof total capital turns positive, but the NPV for equity turns positive in 2037.

Figure 6: The MIRR for both total cash flow and capital and net cash flow and equity

Figure 6 shows that in the year 2033 the investment has paid off. In 2033 the MIRR hasreached the acceptable return, but the MIRR for equity reaches the accepteble return in

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2037.

Figure 7: The cash flow for both total cash flow and capital and net cash flow and equityin million ISK

Figure 7 shows that both the total cash flow after tax and net cash flow is positive afterthe operation has started. The cash flow is negative the first two years of the investmentproject, due to investment cost during contruction time.



10 years Total capital Equity 20 years Total capital EquityNPV (MISK) −2.479 −2.478 NPV 1.169 −463

IRR 1% 1% IRR 9% 9%MIRR 4% 5% MIRR 8% 10%


Table 10 shows that the investment is not profitable after 10 years. The NPV is negativeand the MIRR has not reached an acceptable return. However, in 20 years the investmenthas paid off, the NPV for total capital is positive but the NPV for equity is negative. TheMIRR has just reached the acceptable return for both total capital and equity. Like statedearlier in this study the minimum acceptable rate of return is 7, 2% for total capital and10% for equity.

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Figure 8: The net present value for both total cash flow and capital and net cash flow andequity in million ISK

Figure 8 shows that in the year 2034 the investment has paid off. The first year of operationis in 2019, like the above figure shows the NPV value drops the first two years, duringconstruction time. After the operation has started the NPV increases and in 2034 the NPVof total capital turns positive, but the NPV for equity does not turn positive in the first 20years of operation.


Figure 9 shows that in the year 2034 the investment has paid off. In 2034 the MIRR has

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reached the acceptable return, but the MIRR for equity does not reach the accepteble returnin the first 20 years of operation.


Figure 10 shows that both the total cash flow after tax and net cash flow is positive afterthe operation has started, in 2019. The cash flow is negative the first two years of theinvestment project, due to investment cost during contruction time.



10 years Total capital Equity 20 years Total capital EquityNPV (MISK) 13 −24 NPV 154 693

IRR 8% 8% IRR 13% 13%MIRR 8% 9% MIRR 10% 11%


Table 11 shows that the investment is profitable after 10 years. The NPV for total capitalis positive and the MIRR for total capital has reached an acceptable return. However, in 20years the investment has paid off, both the NPV for total capital and for equity is positive.The MIRR has reached an acceptable return for both total capital and equity. Like statedearlier in this study the minimum acceptable rate of return is 7, 2% for total capital and10% for equity.

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Figure 11: The net present value for both total cash flow and capital and net cash flow andequity in million ISK

Figure 11 shows that in the year 2027 the investment has paid off. The first year ofoperation is in 2019, like the above figure shows the NPV is negative the first two years,during construction time. After the operation has started the NPV increases and in 2027the NPV of total capital turns positive and the NPV for equity turns positive in 2030.


Figure 12 shows that in the year 2027 the investment has paid off. In 2027 the MIRR hasreached the acceptable return, but the MIRR for equity reaches the accepteble return in

26

2030.


Figure 13 shows that both the total cash flow after tax and net cash flow is positive afterthe operation has started, in 2019. The cash flow is negative the first two years of theinvestment project, due to investment cost during contruction time.

6.4 Risk analysis

To see what variables has the highest impact a sensitivity analysis was applied on therevenue, long term prediction and the investment cost. Following figures demonstrates howthe variables behave when changing. The range used in the sensitivity analysis was ±30%.

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Figure 14: Sensitivity analysis of the net present value of equity in case 1

Figure 14 shows that the initial revenue has the highest impact, in case 1, because that linehas the most gradient in the slope. The slope for the long term prediction has the smallestgradient thus the prediction has the lowest impact on the results. The following figure 15shows the changes in MIRR for case 1, respectively.

Figure 15: Sensitivity analysis of the external rate of return of equity in case 1

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Figure 16 shows that in case 2 the investment cost has the highest impact since the gradientin the slope for investment cost is the biggest. The fixed rent and initial revenue fromoperator is very similar because the fixed rent is so high at the beginning. The slope for thelong term prediction and the revenue related to income is almost identical, that is becausethe revenue related to income is very low because of a high fixed rent and the long termprediction is applied on the revenue related to income. Thus in this case revenue relatedto income and long term prediction has low impact on the results. The following figure 17shows the changes in MIRR for case 2, respectively.


29


Figure 18 shows that in case 3 the investment cost has the highest impact on the resultssince the gradient in the slope for investment cost is the biggest. In this case the fixedrent and long term prediction has low impact on the results since the fixed rent is low, thelong term prediction has an effect on the revenue related to income and that proportionis very low. However, in this case the revenue related to income and initial revenue fromoperator are almost identical, because the fixed rent is low and thus the revenue relatedincome is calculated from an amount that is very close to the total revenue from operator.The following figure 19 shows the changes in MIRR for case 3, respectively.


30

In cases 1 and 2 the length between the lines is similar but in case 3 the length betweenlines is much less and that demonstrates that the risk level in case 3 is the least of all threecases. Since the gradient in the slopes is less in case 3 than in case 1 and 2.

The sensitivity analysis only shows what happens if one variable changes but it is im-portant to see what happens if more than one variable changes. In scenario analysis it ispossible to see what happens in worst case scenario, i.e. what happens if the investmentcost increases, the revenue decreases, the long term prediction decreases and vice versa inbest case scenario.

A scenario analysis was applied on revenue, investment cost and long term prediction.The following tables shows the results from the scenario analysis from all the cases overtwenty years of operation lifetime. It is assumed that the cost will go down to 80% ofthe current value in the optimistic scenario and that the cost will go up to 120% in thepessimistic value. For the revenue and long term prediction it is assumed that the valueswill go up to 120% of the current value in the optimistic scenario and down to 80% inthe pessimistic scenario. Since the initial revenue is estimated from the utilisation from2015 and then the long term prediction was applied, the optimistic and pessimistic val-ues was found by using the optimistic and pessimistic prediction from Isavia for the year of2016, 2017, 2018 and 2019, to estimate the optimistic and pessimistic initial revenue in 2019.

The optimistic and pessimistic values are ±20% from the current values and that is be-cause Isavias long term prediction has a ±20% variability [12]. Where the current valuesare the results from the financial feasibility model.

Scenario summary Current values Optimistic PessimisticChanging cells:Building cost 100% 80% 120%

Equipment cost 100% 80% 120%Desing cost 100% 80% 120%

Long term prediction 100% 120% 80%Initial revenue 1.170 1.322 1.030Result cells:

NPV total capital 2.082 6.219 −1.657IRR total capital 10% 15% 5%MIRR total capital 8% 11% 6%

NPV equity 131 3.552 −3.001IRR equity 10% 17% 5%MIRR equity 10% 13% 7%

Table 12: Scenario analysis for case 1

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Table 12 shows that in the pessimistic scenario the investment will not pay off in 20 years.Both NPV for total capital and equity is negative and the MIRR for both total capitaland equity does not reach the acceptable return. However in the optimistic scenario, bothNPV for total capital and equity is positive and the MIRR for both total capital and equityreaches the acceptable return.

Scenario summary Current values Optimistic PessimisticChanging cells:Building cost 100% 80% 120%

Equipment cost 100% 80% 120%Desing cost 100% 80% 120%

Long term prediction 100% 120% 80%Initial revenue from operator 1.170 1.322 1.030

Fixed rent 100% 120% 80%Revenue related income 100% 120% 80%

Result cells:NPV total capital 1.169 5.311 −2.675IRR total capital 9% 15% 4%MIRR total capital 8% 10% 6%

NPV equity −463 2.988 −3.709IRR equity 9% 16% 3%MIRR equity 10% 13% 6%



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Scenario summary Current values Optimistic PessimisticChanging cells:Investment cost 100% 80% 120%

Long term prediction 100% 120% 80%Initial revenue from operator 1.170 1.322 1.030

Fixed rent 100% 120% 80%Revenue related income 100% 120% 80%

Result cells:NPV total capital 154 342 −7IRR total capital 13% 21% 7%MIRR total capital 10% 12% 7%

NPV equity 69 226 −68IRR equity 13% 21% 7%MIRR equity 11% 14% 9%



6.5 Summary of the results

By comparing the above results it is most profitable for Isavia to operate the parking garagethemselves since the net present value is the highest, the cash flow is the most and the MIRRis acceptable, in case 1. For the summary a risk point method was created, by the authorof this thesis, to evaluate the risk for each case, with the equation:

Risk points(x) = Cx − Px

Dmax· 10 (5)

Where

• C is the current net present value of equity after 20 years

• P is the pessimistic net present value of equity after 20 years

• x is case 1, 2 or 3

• Dmax is the maximum difference between Cx − Px

The following table and figure shows the results for the risk points.

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x Cx − Px Cx (NPV ) Risk points(x)Case 1 3132 176 9, 65Case 2 3246 −463 10Case 3 137 69 0, 42

Table 15: Risk point for all the cases

Figure 20: Risk points for all the cases

The orange arrow from figure 20 shows that the objective for this investment is to maximizethe NPV and to minimize the risk. Thus case 2 is not taken under consideration for thisinvestment. Once the operation turns profitable Isavia can use the profits to invest inthe airport infratructure. Thus the most feasible option for Isavia is to use case 1 foroperation model since the NPV is the highest, the MIRR is acceptable and the cash flowfrom operation is the most in case 1.

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7 Discussion and conclusions

Even though case 1 is the most profitable it is nessecary when comparing many differentoperation models to consider all alternatives before choosing an operation model. Isavia is apublic corporation and has to follow strict regulations, the operation has to be transparentand has to fulfill their social responsbility since the profit from operation is a public fund.In this investment project it is recommended that Isavia would seek offer from contractorsboth for case 2 and 3 to maximize the profit.

If Isavia can outsource the operation (case 2) and get the same or higher NPV of totalcapital and equity and acceptable MIRR the risk level should be lower and the profit couldbe the same or higher, thus it is necessary to seek offers. However, if Isavia wants to mini-mize the risk, case 3 is the best option.

It is necessary to realize that this model is based on an assumption that is consideredto be the most likely scenario when making this financial feasibility study. The main pur-pose of the study was to build a financial feasibility model for Isavia to use under manydifferent circumstances. In that case Isavia can change the assumptions made in the model.Isavia can change the investment cost, the initial revenue, the long term prediction, thevariable and fixed operation cost, minimum acceptable rate of return, the proportion fordepreciation and pay dividend, if the state decides to pay dividend of the operation. In case2 and 3 Isavia can change, in addition to aforemantioned variables, the fixed rent and theproportion for revenue related to income. In that case there are many things that Isaviacan do for future work with this investment. A description of the color coding in the modelis described in appendix C where the changing variables in the model has a color codes.

7.1 Future work

The model made in this study can be extended and the assumptions made can be modifiedin many ways for further study. Here are some ideas for further study,

• Make a revenue model for the parking garage. In that case the revenue will not beestimated from the revenue of the parking options today but a market research couldreveal the what various parking options and service should be offered in the parkinggarage and what travellers and car rentals are willing to pay.

• It is also possible to adapt revenu- and operation models from parking garages atScandinavian airports.

• The parking garage is 5 floors, 1700 parking spaces and 42000 m2 thus Isavia shouldconsider to distribute the construction time over longer period. For example, build 2

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floor with 680 parking spaces and begin to operate the garage while the constructioncontinues.

36

References

[1] F. Lawrence Bennet. The management of construction: A project life cycle approach.Butterworth-Heinemann., 1st edition, 2003.

[2] Anna Regína Björnsdóttir. Financial feasibility assessments, january 2010.

[3] Bílastæðasjóður. Bílahús. http://bilastaedasjodur.is/#bilahusin, Oktober 2016.

[4] Ferðamálastofa. Brottfarir Íslendinga um leifstöð 2004-2016. http:

//www.ferdamalastofa.is/is/tolur-og-utgafur/fjoldi-ferdamanna/

talningar-ferdamalastofu-i-flugstod-leifs-eirikssonar, 2016.

[5] Isavia. Isavia - hluti af góða ferðalagi. http://www.isavia.is/um-isavia, 2016.

[6] Isavia. Tölur um farþegafjölgun. http://www.kefairport.is/Um-felagid/

Tolur-um-farthegafjolda/Arstolur/, November 2016.

[7] Páll Jensson. Profitability assessment models, workshop on fisheries and aquaculturein southern africa: Development and management, August 2006.

[8] Þjóðskrá. Fasteignamat ríkisins. http://www.skra.is/fasteignaskra/

leit-i-fasteignaskra?heitinr=1009538&landnr=101354&streetname=

Hverfisgata%2020&sveitarfelag=Reykjav%C3%ADk, February 2016.

[9] kefairport. Isavia. http://betterairport.kefairport.is/masterplan/, February2016.

[10] Frank Lefley. Modified internal rate of return: Will it replace irr?. ManagementAccounting: Magazine for Chartered Management Accountants, 75(1):64, 1997.

[11] Martina Merková, Josef Drábek, and Denis Jelačić. Application of risk analysis inbusiness investment decision-making. Drvna industrija, 64(4):313–322, 2013.

[12] Dr. Huginn Freyr Þorsteinsson. Keflavíkurflugvöllur — stóriðja í stöðugum vexti, 2016.

[13] Donald S. Remer and Armando P. Nieto. A compendium and comparison of 25 pro-jectevaluation techniques. International Journal of Production Economics., 1st edition,1995.

[14] Ríkisskattstjóri. Skattar og gjöld, November 2016.

[15] Sandgerðisbær. Gjaldskrá sandgerðisbæjar 2016. http://sandgerdi.is/wp-content/

uploads/2015/10/gjaldskra-2016.pdf, 2016.

[16] Microsoft support. Correl function, November 2016.

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http://bilastaedasjodur.is/#bilahusin

http://www.ferdamalastofa.is/is/tolur-og-utgafur/fjoldi-ferdamanna/talningar-ferdamalastofu-i-flugstod-leifs-eirikssonar



http://www.isavia.is/um-isavia

http://www.kefairport.is/Um-felagid/Tolur-um-farthegafjolda/Arstolur/

http://www.kefairport.is/Um-felagid/Tolur-um-farthegafjolda/Arstolur/

http://www.skra.is/fasteignaskra/leit-i-fasteignaskra?heitinr=1009538&landnr=101354&streetname=Hverfisgata%2020&sveitarfelag=Reykjav%C3%ADk



http://betterairport.kefairport.is/masterplan/

http://sandgerdi.is/wp-content/uploads/2015/10/gjaldskra-2016.pdf

http://sandgerdi.is/wp-content/uploads/2015/10/gjaldskra-2016.pdf

Appendices

A Investment cost

Table 16 demonstrates the breakdown of the total investment cost Isavia estimates.

Item Cost per m2 (ISK) Total costParking garage 200.000 8.400.000.000

Connection tunnel 700.000 280.000.000Desing − 250.000.000

Equipment − 50.030.000Total investment cost − 8.980.030.000

Table 16: Breakdown for investment cost

B Operation cost

The operation cost was found from Reykjavik car park operation cost and the real estatetax was from Sandgerði’s current tax rates. Like described in chapter 3.2.

Cost Total cost Cost per Isavia operationitem from 2015 parking space cost

Real estate fee 68.841.372Maintenance 54.667.000 53.912 91.650.789

Energy 38.296.000 37.767 64.204.339Other 22.240.000 21.933 37.285.996

Total for fixed op.cost 261.982.496

Table 17: Breakdown for operation cost

The variable fixed cost is the salary, salary expenses and management cost is a 20% of theoperation cost and is 52.396.499.

Following table shows the number of Reykjavik’s parking spaces in the parking garages.

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Parking garage NO. of parking spacesStjörnuport 191Vitatorg 223Kolaport 166Vesturgata 106Traðarkot 270Bergstaðir 58

Total number of parking spaces 1014

Table 18: Number of Bílstæðasjóður parking spaces [3]

C Model calculations

Following figures shows the model calculations in case 1 over 10 years of operation. Thesummary and result sheets for all three cases are shown here below. The calculation sheetsfor case 1 indicates the calculations for all three cases over 20 years of operation. Thus thecalculation for case 1 should give a good example how the calculation were in this wholestudy. Cells colored with yellow are the results from the financial assessment, the cellscolored with blue are the changing cells with the assumptions and the cells colored withpurple are the changing cells for sensitivity coefficients.

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Figure 21: Summary sheet in case 1

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Figure 24: Investment sheet in case 1

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Figure 25: Operation sheet in case 1

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Figure 26: Cash flow sheet in case 1

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Figure 27: Balance sheet in case 1

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Figure 28: Profitability sheet in case 1

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Documents

FinancialAssessmentandRisk Analysis - Skemman Assessent an… · Special thanks to my supervisor Páll Jensson, professor at Reykjavik University for his ... long term parking and