Assume you are considering a proposal to buy an old house in the Netherlands to convert into 5 luxury rental apartments and hold it as an investment so that you create regular income for the next 5 years. The estimated cost of the house and the renovations would be about €400,000. (NOTE : YOU HAVE TO ASSUME ALL THE NUMBERS AND SITUATION AND THEN SOLVE THE QUESTION ACCORDINGLY)

1. Cash flow analysis. Use the direct or indirect method. Present your calculations and discuss the findings.
2. Capital structure & cost of capital analysis: estimate the overall rate of return (WACC). Make assumptions about your capital structure mix. How are you going to finance the investment? Determine which financing sources you’ll use and discuss how the capital structure mix affects the WACC. Present your calculations and discuss the findings.
3. Capital budgeting analysis: Discuss which methods of Investment appraisals (at least 2) you will use to evaluate your project and why you have chosen those (advantages and disadvantages). Present your calculations and discuss the findings.
4. Shareholder value analysis: Assume that after 5 years, you want to sell the property. How will you measure your company’s commitment to value? Which method will you use and why? What would be the minimum price or rate of return you’ll accept? Present your calculations and discuss the findings.
5. Risk analysis: every investment is exposed to significant risks. Name and discuss the risks (at least 2 risks) associated with this specific investment and your strategy towards these risks.

Do not consider taxation in your calculations.
Assume banks charge 3% interest on borrowings
Make assumptions and/or research for the main elements you want to include in your calculations e.g. your own expected return on equity, rent prices, monthly costs, risk factors, growth rates etc.