Angus Cartwright III Case Solution
Angus Cartwright, III, is the investment advisor based in Virginia, who takes conservative approaches to risk. Angus Cartwright, III was engaged in dealing with the DeRight Family for several years and had located four properties that would be an appropriate investment for his clients. Judy DeRight was the sole stockholder as well as the president of a small-sized chemical firm that had strong financial standing. She had received a number of offers to sell her firm in exchange for the stock of the public company. He was concerned about diversifying the business due to the increased benefits of real estate, such as: protection from inflation, benefits of diversification and some tax advantages. Each DeRight member is seeking to purchase a property that must be large enough to attract professional real estate management firm interest and they want a minimum leverage return of 12% after-tax on their investment.
The clients include Alison Green, 900 Stony Walk, Ivy Terrace and The Fowler Building. He is concerned regarding the evaluation of the reason-ability of the rent levels, purchase price, operating expenses and amenities provided in the properties. The first was Alison Green, which had 100 apartments in Montgomery, Maryland, and the second was 900 Stony Walk, a commercial building that could be rented by small service companies. The third and fourth properties, the Ivy Terrace and the Fowler Building, were both under construction and located in Arlington.
John DeRight and Judy are looking forward to diversify their portfolio of investment, due to which they have retained Cartwright, Jr. in order to identify and evaluate the prospective real estate acquisitions. Mr. Cartwright has various properties that he feels merit an in-depth financial analysis. To come up with an accurate and reliable financial analysis of each property;Cartwright must need logical assumptions and he should evaluate the attributes by using various techniques to make the right and valuable decisions.
Analysis and evaluation of proposed properties
The valuation and analysis of the property would determine which property would be preferable to be held for earning high capital gains and profits. The valuation of each property would help the investors in estimating the property to be purchased for investment. The results of the analysis depend on various key factors, such as: utilization, the tax rate, the interest rate and the inflation rate set by Cartwright.
An increase in the net operating income and capital reserves would be of 3% annually for Ivy, Stony Walk, Alison and 5% for Fowler. A capital gain tax rate of 28%, Ordinary tax rate of 39.6% would apply. Clients would supply necessary equity beyond mortgages and could use any tax losses against other income and tax laws would not change. Expected cash flows from operations increased by 3% per year except for Fowler Building which projected to increase by 5% per year. After discussing it with De Rights; Cartwright suggests that they should hold the investments for 10 years. Alison green will make a 20.4% profitability index and stone, ivy, Flower building produce 17.27%, 11.64%, and 13.5% PI. After calculation; it is realized that he can generate maximum profit by other options, due to which PI is considered as the most important option…………………..
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