Angus Cartwright IV Case Solution
The financing through the use of mortgage would have some effect on the performance because if the property would be unable to generate the desired results, then the return would not be favorable for the investors. Therefore, the net internal rate of return generated for the 10 years of projected results would give only 3% increase as the property holds majority of the debt amount instead of equity. The other reason would be the lowest price/square feet, which would not allow the investor to hold the position for the future.
If considering the price of Ivy Terrace, then it shows that the property possessed less value as compared to other selected properties for investment. Therefore,it might attract the investors regarding the minimum amount of investment to gain higher capital return however,the situation was not favorable as the property was already subjected to leasehold payments as well as loan repayments, which decreased the overall profit margins. It also seems that the internal rate of return would be less than 1% by the end of the 10th year.
Therefore,investing in Ivy Terrace would be a waste of money in the future because in finance, the time value of money is the most important factor for the investors. It also indicates that there is no tax benefit in the property as well as it has generated less cash flows before taxes annually. Thus,with all these factors, it is concluded that investment in Ivy Terrace would not benefit the investors overtime.
The Fowler Building
The property had the highest purchasing price as compared to other properties as it was occupied with 135000 square feet. Therefore,under the investors’ consideration, it shows that the return would be high due to the fact that the space would generate enough cash flows to overcome the debt repayments as well as it would increase the capital gains at the time of sale. Therefore, the expected internal rate of return generated through the use of related cash flows would be 24% in the process of 10 years of projections.
This would be interesting for the shareholders because they would prefer higher capital gains over the investment for long-term. The other factor would include the unrealized gain from the sale of property as the expected results show that the property would gain $7 million at the time of sale.
The most attractive offer for this property is the requirement of only $6.5 million to take benefit from the gain on capital investment. So under this criteria, every investor would prefer holding the amount of share in order receive high capital gains as well as the unrealized gain from the sale of property.
From the following analysis and results taken from the property valuation, it is concluded that the best option for De Right family would be to invest in Fowler Building due to low equity requirement with high capital gain at the end of the term year.It is also identified that with the increasing rates of the property overtime, Fowler Building would have to be considered as an opportunity for the appreciation of the capital in the future. Another important factor is the net present value at the end of the 10th year of projection, which clearly shows that the value of Fowler Building is three times greater than other. Therefore, it is concluded that investment in Fowler Building is best for all the investors who would consider capital appreciation in the future……………………
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