At the start of the Phoenix project development, the main risk was that Village Board could jeopardize the key feature of the MACD’s deal, the $4, 1 million agreement (Hamermesh 1). McCaffrey was concerned that the Village residents could negatively perceive the company’s plans for wetland relocating and traffic. So as this aspect could hinder the process of the Village approval, before the Village public hearings, MACD had sent an e-mail letter with the project explanations to its neighboring residents (Hamermesh 5). At the end of the MACD case, the company faced the financial risk of nonreceipt a 2 million construction loan. The main difficulty causing such a risky situation was the company’s failure to obtain a revolving line of credit to pay subcontractors their fees while MACD waited for the Village funds (Hamermesh 2). Also, the company was under the risk of changing negotiating terms with the seller, who failed to show up at closing (Hamermesh 2). Economic risk caused by an inevitable economic recession could also significantly impair the company’s strategies and profits (Hamermesh 11).
The job done by Dick McCaffrey in managing the project and dealing with uncertainties was always very competent and profound. Some uncertainties arising in the case have been thoroughly analyzed and evaluated so that McCaffrey forecasted different challenges and tried to find the most appropriate resolutions.
b. Evaluate the economics of the project. What are the returns and how do they vary depending on the final purchase price?
Colleen McCaffey said that “ the risks on this project were high, but so rewarded” (Hamermesh 2). Obviously her statement about rewards was supported by the real financial perspectives favorable for the MACD Corporation. According to the appraisal conducted, the purchase price of the land was considerably below the market value underdeveloped property. Considering the scenario described in Exhibit 7a, it has been assumed that the purchase price of the land was $800, 000, while the total purchase price was $1. 8 million (Hamermesh 4). In 2003 cash disposable for owners, extracting all debts and liabilities have been predicted to be more than $ 250, 000 (Exhibit 7a). From an economic perspective, the Phoenix project can be evaluated as a paying business.
c. What actions should McCaffrey take regarding gaining Village approval? Finalizing the loan with Bank One? And agreeing on a final purchase price?
To gain Village approval McCaffrey had to mail a letter to residents, which could explain the benefits of the project to them and to conduct Plan Commission hearings. The MACD team should have provided support to residents and answered all their questions, minimizing the risk of Village resident discontent (Hamermesh 6). To finalize the loan with Bank One, McCaffrey had to look for the financing sources that would provide him the $500, 000 revolver for construction expenses (Hamermesh 10). For agreeing on a final purchase price, McCaffrey should have to negotiate with the seller for the price they both “ could live with”, and if necessary to put pressure, operating with the results of environmental studies for the price (Hamermesh 12).