C1. You are asked to advise Beachside Investments who want to buy a freehold commercial investment property in Brighton. They want you to advise on two alternative investments, both of which have recently been let to established businesses. Beachside Investments plans to hold the properties as a long term investment. You need to advise Beachside Investments on which of two investments is more attractive based on a comparison of net present value. The Finance Director tells you that the company has a target investment return of 11%. Investment A This property is located in Brighton and has just been let for 500,000 per annum on a new year lease with three yearly rent reviews on full repairing and insuring terms with a one year rent free period. The property is on the market for 5,500,000 and can be purchased for 5,200,000. Rental growth is predicted to be 7% per annum for the foreseeable future. Investment B This property is also located in Brighton. It can be purchased for 5,500,000 and is let on a new lease at 520,000 per annum with a one year rent free period. This property is just let on a new 10 year FRI lease with five yearly rent reviews. Rental growth is predicted to be 8% per annum for the foreseeable future. (a) Making any assumptions that are needed, calculate the NPV for each investment (12 marks) 12 Explain in a few sentences which is the better investment. (4 marks) C1. You are asked to advise Beachside Investments who want to buy a freehold commercial investment property in Brighton. They want you to advise on two alternative investments, both of which have recently been let to established businesses. Beachside Investments plans to hold the properties as a long term investment. You need to advise Beachside Investments on which of two investments is more attractive based on a comparison of net present value. The Finance Director tells you that the company has a target investment return of 11%. Investment A This property is located in Brighton and has just been let for 500,000 per annum on a new year lease with three yearly rent reviews on full repairing and insuring terms with a one year rent free period. The property is on the market for 5,500,000 and can be purchased for 5,200,000. Rental growth is predicted to be 7% per annum for the foreseeable future. Investment B This property is also located in Brighton. It can be purchased for 5,500,000 and is let on a new lease at 520,000 per annum with a one year rent free period. This property is just let on a new 10 year FRI lease with five yearly rent reviews. Rental growth is predicted to be 8% per annum for the foreseeable future. (a) Making any assumptions that are needed, calculate the NPV for each investment (12 marks) 12 Explain in a few sentences which is the better investment. (4 marks)
