FINACIAL SUMMARY

Objective:

The attached study is designed to analyze the company’s financing capacity and the feasibility of undertaking the CANCUN TOWER investment project in such a way as to optimize the resources it obtains, given the project’s cost and contracting conditions. This study is based on the positive results of a financial analysis of the project from an internal return rate perspective.

Scope:

The study focused on analyzing various sources of financing available to the company. Several third party investment alternatives were studied and the following deemed viable for the project:

a) US dollar loan at an estimated 11% interest rate, with a 10 year mortgage on the property and two year grace period on payment of principle.

In addition, we analyzed possible project funding through capital contributions of the company’s existing partners and participation of a new Investor Group.

We determined the project’s debt capacity based on capital structure financing policies and the foregoing.

Conclusions:

As a result of the above study, we arrived at the following conclusions:

1.- The following aspects of the operating premises we used should be highlighted:

a) It is estimated that 33% of tourists staying in the area will go up in the tower; a market study by AInerxia Marketing & Advertising Consultants projected that 90% of the area’s tourists would visit the tower.

We do not have enough information to calculate telecommunications income; however, we have received comments to the effect that our financial projections in this area are low.

b) Income figures increase 3% per year as a result of combined tourism influx and price estimates.

c) Cost figures are increased by 1% per year based on US inflation rates, plus additional points.

d) Direct line deduction method is used on the property, taking a 33% deduction in financing costs.

e) We propose that 75% of cash exchange [differences] resulting at year=s end be disbursed as dividends for shareholders.

2.- The maximum debt limit for the project was set at 50%. However, 100% of the project can be financed by a loan, but we do not consider it advisable for the following reasons:

a) It limits future debt capacity

b) It raises financing costs

c) There would be no hedge for emergency financing, if needed.3.- According to our study, a US dollar loan is the most cost effective form of financing and we recommend it as the only source of financing due to the amount involved, its low cost and the fact that the project’s income will be in dollars.

Bancomext has confirmed they would be interested in funding the project as the primary lending institution as needed to finish the project and start operations, as long as 50% of the project cost is covered.

4.- Shareholders contributions and loans are needed to maintain the company’s entire capital structure.

5.- The project currently has two loans extant that are being restructured by Bital and Bancomer; USD $4,600,000.00 and USD $ 400,000.00, respectively, have already been paid on them. These loans will be paid by the original partners over a ten-year term using shareholder dividends.

6.- Dollar funds are required to finish the project. Sources for these funds are as follows:

a) Loans $ 27,000,000.00

b) Capital from Current Partners 4,350,000.00

c) Capital from New Partners 13,500,000.00

Total: $ 44,850,000.00

Funds will be invested as follows:

a) Pre-operating expenses $ 2,030,000.00

b) Investment in project 33,636,000.00

c) Financing Costs 4,184,000.00

d) Bancomer payment 400,000.00

e) Bital payment 4,600,000.00

Total: $ 44,850,000.00Future capital structure would be as follows:

a) Debt $ 27,000,000.00 50.00%

b) Capital 27,000,000.00 50.00%

Total: $ 54,000,000.00 100.00%

The above structure meets the financing requirement of maintaining a maximum 50% debt limit.

7.- The combination of financing sources studied resulted in the following financial indicators:

a) The project’s internal rate is 22.34%.

b) The project’s internal shareholder rate is 15.22%.

c) The project’s capital cost is 12.16%.

d) The investment’s net operating investment is 35.16%.

8.- Based on these financial indicators, the following conclusions can be made for the first 10 years:

a) The first year's working capital is $4,600,000.00, increasing to $100,579,000.00 by year 10.
b) Estimated current ratio varies between 2.36% and 41.54%.
c) The debt indicator reduces from 0.43% to 0.02%.
d) The leveraging indicator reduces from 0.76% to 0.02%.
e) Interest coverage increases from 5.35% to 240.16%.
f) Debt service oscillates between 3.41% and 12.52%.
g) Profit on capital accounts is between 0.26% y el 0.13%.For all of the above reasons, we can conclude that the combination of financing sources would cost less than project returns, so the project is viable.

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