MAGIC MOUNTAIN

RESORT:
A Project Proposal

BY:
GIGI ROA
LLB/CPA/Real Estate Broker
 DESCRIPTION
Project Type : Mountain resort
• 1 Km 2 Cable Type Canopy / zipline
• 10 hectares trekking
• 10 hectares camping site
• 5 Km mountain biking trail
• 10 rooms Manobo Inspired mountain lodge
• 1 unit restaurant with natural ambiance
• Horseback riding areas with horses for
rent
•
• Project Location : Mambatangan, Manolo Fortich,
Bukidnon
PROPONENT
Type : Joint venture/partnership
Name : GIGI C. ROA
Address : Cagayan de Oro City
Bukidnon
5
Project Cost
PROJECT RATIONALE /BACKGROUND

The proposed project aims to optimize the use of an

otherwise underutilized 50-hectare land at
Mambatangan, Manolo Fortich, Bukidnon.

Amenities:

a mountain resort equipped with the following

facilities and amenities:
 
1. 1-kilometer zipline
2. A 10-hectare campsite
3. Trekking and mountain biking areas
4. A 10-bedroom mountain lodge
5. A 24-hour restaurant
6. Horseback riding areas with horses for rent
Market Concept
• The zip line will be the main attraction
•
• It will be nearer to Cagayan de Oro City --- only 30 minutes, against
Dahilayan which is more than an hour away from Cagayan de Oro City
As of latest count, there are sixteen (16) zip line destinations in the
Philippines to spend a holiday of action and adventure, as follows:
MARKET ANALYSIS
§Nearest zipline is located at Dahilayan Adventure Park’s Zipzone, currently, claims to be Asia’s longest at 840 meters.
§
§
§Given Dahilayan’s established market, this project neared CDO and with longer Zipline aims to capture at most 80% of potential customers.
 

§The proponent along with her team, painstakingly observed the goings-on at Dahilayan’s Zipzone for quite sometime and their observation has been that
those who come without confirmed prior reservations cannot be accommodated because all available zipline slots for the day have prior reservations.
§
Market Analysis
Dahilayan zipline operations is at an average of PHP200,000.00
daily or a whopping PHP5 million of net income per month.

Proponent is, thus, certain that given their lower rates vis-
à-vis Dahilayan’s, it would not be difficult to get a fair
share of the market if they could provide excellent service
comparable to any of the existing zipline facility. With a
1-kilometer zipline stretch, the proposed project would
gain the distinct advantage of being Asia’s new longest
zipline, bumping off Dahilayan from its current top
position. Another advantage for this proposed project is
its proximity to Cagayan de Oro City --- only 30 minutes
drive, while Dahilayan is more than an hour away.
Technical
 
Human safety will be one of the proposed project’s identifying feature, its DNA, so to
speak. It will put in place, a backup or failsafe configuration that acts in conjunction or
separately from the primary system. A second cable will be put in place for added safety.
Adding a second cable does not require complicated engineering and is not cost
prohibitive considering that bulk of construction costs go into the launch platform
infrastructure, the supporting towers and the purchase of safety equipment. Adding a
secondary cable is a comparatively minor cost. For example, the price of 17,500-pound
rated cable in the Philippines is less than PHP150/meter.
 
Design, construction and implementation will be done by qualified engineers fully
competent and capable of designing safe infrastructure. The proposed project will
never be an accident waiting to happen.
 
Prior to start of commercial operations, the proposed project will ensure that is has
secured a Practitioner Certification that is has met the required set of criteria that
acknowledges its ability to effectively secure and/or facilitate a participant in a manner
that is safe. Certification also outlines the requirements for practitioner competencies
related to minimal operational standards.
It will also send its staff to periodic technical skills training/workshops hosted by
competent training organizations and entities such as the AZTEC Training Center in
Davao City which offers the following training/workshop curriculum:
 
 Review and discussion of zip line accidents
 Proper set-up and take-down procedures
 Equipment overview
 Knot tying
 Basic technical skills
 Recommendations regarding braking systems
 Managing the safety of program facilitators
 Communication protocol
 Accident prevention strategies
 Emergency zip line rescue techniques
 Line clearing

Knowledge of safety equipment is required for proper evaluation and practitioner
certification by AZTEC. All staff operators should have a functional understanding of
the equipment and be thoroughly familiar with its intended use for which it is designed
and manufactured.
Canopy tour/zip line operators shall;
 
Know the required technical competencies and operate within their skill
level training. 

Have an appropriate level of knowledge regarding the specific activity being
used. 

Be able to determine an appropriate staff-to-participant ratio to ensure
participant safety. 

Understand the site protocols for emergency rescue and implement an
emergency action plan. 

Be able to assess hazards and look for possible problems. 

Understand how weather can affect the element. 

Be able to adequately recognize problems stemming from human behavior,
attitudes or health conditions of the participants. This can include levels of
maturity, cognitive ability, health, physical ability and emotional issues such
as fear that can greatly affect participants. 

 Possess sound judgment in order to assess all aspects of the operation. Faulty
equipment, kinked cable, fearful riders including improperly-behaved rider, or
weather-related influence on the steel cable that can negatively affect the
operation.
 Be able to effectively and clearly communicate with participants and staff.
 
 Recognize the inherent risks associated with the operation of a canopy walk/zip
line tour.
 
 Be able to properly fit equipment to riders in accordance with manufactures
recommendations.

 Be able to understand the proper set up of all equipment.

 Have knowledge of infrastructure for the purpose of inspection regarding cables,
platform, guy supports, anchors, etc. and determine if repairs are needed.
 
 Understand that clothing, hair, camera straps, etc., may pose a hazard if caught in
a pulley or wrapped around a cable.

MANAGEMENT
 
The proposed project will be manned initially by thirty-four (34)
employees, as follows:

 1 General Manager
 1 Restaurant Incharge
 2 Supervisors
 2 Lodge receptionists
 3 Lodge boys
 1 Chef
 4 Waiters
 4 Utilities
 4 Security Guards
 4 Canopy/zipline technical staff
 2 Trekking staff
 4 Campsite personnel
 2 Drivers
 
The number of employees may later be increased depending on the
actual need of the project.
 The General Manager shall be the overall head of the project. He shall
report directly to the owners.

FINANCIAL
 
Accompanying are the following:
 
1. 5-year financial projections are attached using the following
assumptions:
1.1. Project cost is estimated at PHP37,958,750.00, as
follows:
 1.2. As shown in the computation below, fund requirement will,
however, be only PHP12,958,750.00, considering that part of the
capital expenditures budget is the cost of the 50-hectare land valued
at PHP25 million. The land which is owned by the proponent’s
partner is already in place and ready for development.

1.3. Pre-operations which include organization and construction

of all infrastructure and facilities is estimated to last for six (6) months.
Thereafter, commercial operations shall start.
 1.4. Income and expenses are projected to grow at an
average of 10% annually. First year income are
projected to be as follows:

Details of the above income estimates are shown in Schedule 2.

On the other hand, first year expenses are projected to be as follows:

1.5. Provision for income taxes is at 30% of net income before taxes.
 
1.6. 30% of the annual net profit after tax is allocated for profit-sharing to partners.

2. Sensitivity Analysis: 5-year financial projections under two

(2) what-if conditions --
 
2.1. If income projections fall short by 30%; and
 
2.2. If cost and expense projections exceed the budget by 30%.
FINANCIAL ANALYSIS
 
COST-BENEFIT RATIO
 
1. Original assumptions
 
The cost-benefit ratio is the ratio of the cost of a project or proposal, expressed in
monetary terms vis-à-vis the benefits which are similarly expressed in monetary terms.
All benefits and costs are expressed in discounted present values. Under the original
assumptions, the cost-benefit ratio is 41.96%, which means that for every PHP41.96.20
of cost, a benefit of PHP100.00 is earned in today’s value of money.
2. If income falls short by 30%
3. If expenses exceed by 30%
2) If income falls short by 30%
3) If expenses exceed by 30%
NET PRESENT VALUE
 
The net present value (NPV) method of evaluating a major project allows
one to consider the time value of money. Essentially, it helps find the
present value in “today’s pesos” of the future net cash inflow of a project.
If the NPV is greater than the cost, the project will be profitable and,
therefore, worth pursuing. NPV analysis is generally used to evaluate the
project’s cash flows rather than the income from the project as shown in
an income statement.

1) Original assumptions
 
1) If income falls short by 30%
2) If expenses exceed by 30%
INTERNAL RATE OF RETURN
The Internal Rate of Return (IRR) is the discount rate that generates a zero net present
value for a series of future cash flows. This essentially means that IRR is the rate of
return that makes the sum of present value of future cash flows and the final market
value of a project equal to its current market value. Internal Rate of Return provides a
simple ‘hurdle rate’, whereby any project should be avoided if the cost of capital exceeds
this rate. As shown below, the proposed project’s IRR in all 3 scenarios exceeds the
generally-accepted hurdle rate of 12% and, therefore, worth pursuing.

1) Original assumptions
2) If income falls short by 30%
3) If expenses exceed by 30%
 
PAYBACK PERIOD

Payback period is the length of time required to recover the cost of an investment.
 

1) Original assumptions

2) If income falls short by 30%

 3) If expenses exceed by 30%

RETURN ON INVESTMENT
1) Original assumptions
2) If income falls short by 30%

3) If expenses exceed by 30%

 
 BREAK-EVEN POINT ANALYSIS
 
The Break- Even Point (BEP) is the point at which costs and expenses on one
hand, and revenue on the other, are equal and, therefore, there is neither gain
nor loss.
 
Calculation of the BEP is made using the following formula:
 
BEP = TFC
---------------------
(SUP – VCUP)
where:
 
BEP = break-even point (units of production)
TFC = total fixed costs
SUP = selling price per unit of production
VCUP = variable costs per unit of production
 
Using the above formula, the proposed project’s Break-even Point (BEP)
volume/year is computed below:
Please note that:
 
1) On the cost and expense side, the above Break-even Point analysis considers the
total consolidated fixed and variable costs of the proposed project --- which includes
the costs and expenses for the operation of the zipline, trekking and mountain biking
areas, campsite, restaurant and mountain lodge.
 
2) On the income side, it considers only the income from zipline operations.
 
Yet, even as the assumptions are heavily tilted in favor of costs and expenses, the
resulting break-even volume is only 11,364 zipline rides per year. Simply stated, even if
the other areas of operations get zero income for the year, the proposed project will still
break-even if it is able to generate 11,364 zipline rides per year at PHP300.00/ride. At 25
days per month, 12 months per year, 11,364 rides translates to only 38 zipline rides per day,
or roughly an average of 4 rides per hour.
IN SUMMARY, and as shown in the computations above, the proposed project has passed with
flying colors all the financial barometers ---
 
1) COST-BENEFIT ratio of 41.96%, which means that for every PHP41.96 of costs and
expenses, it is able to generate an income of PHP100.00. Even under worst-case
scenarios, the Cost-Benefit ratios are still above par, as follows:

Ø If actual income falls short by 30% vis-à-vis projections, cost-benefit ratio

would still be 62.62%, which means for every PHP62.62 of costs and
expenses, the proposed project would generate an income of
PHP100.00.
 
Ø If actual expenses exceed the budget by 30%, the resulting cost-benefit
ratio would still be 45.44%, thereby requiring only an expense of
PH45.44 for every PHP100.00 of income.
 
2. A positive NET PRESENT VALUE indicating profitability of the proposed project under all 3
scenarios, as follows:
 
Ø PHP56,223,078 under the original assumptions;
 
Ø PHP45,484,274 if actual income falls short by 30% vis-à-vis projections;
and
 
Ø PHP49,294,824 if actual costs and expenses exceed budget by 30%.
 
Thus, even under the worst-case scenarios which are both unlikely to happen, the net
operating cash inflow still exceeds the total project cost.
 
3) INTERNAL RATES OF RETURN which are all higher than the generally-
acceptable minimum acceptable rate of return of 12%, as follows:
 
Ø 52.05% under the original assumptions;
 
Ø 31.41% if actual income falls short by 30% vis-à-vis projections; and
 
Ø 47.35% if actual costs and expenses exceed budget by 30%.

PAYBACK PERIOD, as follows:

 
Ø 1.81 years if the targeted income and budgeted costs and expenses are
met;
 
Ø 3.04 years if actual income falls short by 30% vs. targets; and
 
Ø 2.00 years if actual costs and expenses exceed 30% over budget.

Under any standard, these are very short payback periods.

 
5) RETURN ON INVESTMENT (ROI) of:
 
Ø 55.16% if the projections are met;
 
Ø 32.87% if income is short by 30%; and
 
Ø 49.99% if costs and expenses exceed budget by 30%.
 
Given all of the above favorable financial ratios and considering a very low
break-even volume despite considering only the income from zip line
operations to the exclusion of all the other income-generating centers and
activities, the only conceivable conclusion is to proceed with the proposed
business, albeit with the usual care and prudence.
THANK YOU