finance

Section 2: Case Study - Castles In The Air INTRODUCTION All the inputs mentioned below are provided in the workbook for this case study You are working for a company which is considering purchasing a number of properties You have been asked to model each of the available investments to assist in choosing a portfolio (up to a maximum purchase price of $1 700,000) that maximizes the value to the company, as measured by an increase in net present value The company's cost of capital is 8% AVAILABLE INVESTMENTS Full details of the investments may be found on the table on the subsequent page The purchase price for each property should be paid on 31 December 2017 The company holds the property for a number of years (the investment length) During the investment length, the company receives rental revenue and pays operating costs Where amounts are indexed the base date is 1 January 2018 and the index should step annually (e a full year of indexation should first be applied on 1 January 2019) Do NOT round infiated prices to whole cents in interim calculations At the end of the investment length the company will sell the property for the terminal value The terminal value is not indexed For property 4 the company has the option of overhauling the property Details of the property without overhaul are listed under property 4a Details of the property with overhaul are listed under property 46 The overhaul cost should not be considered in the purchase price constraint It is NOT possible to invest in both property 4a and property 4b The overhaul cost (which is not indexed) Prepare your model and then use it to answer the given questions. When finished, please upload your workbook. See questions page for further directions Round 1 Section 2 - Case Study Information Pack INVESTMENT DETAILS Purchase Price Investment length Overhaul cost Property 1 $450,000 5 years NIA Property 2 $550 000 5.5 years Property $500,000 6 years NA Property 4 $470 000 4 years NA NA Property 4b As 40 As da $125 000 paid 31 Dec 2010 5675,000 Up to overhaul as da Terminal value Rental revenue $600.000 $45,000 per year Paid monthly $575.000 $60,000 per year Paid quarterly (starting March Indexed at 3% $550,000 $55,000 per year Paid quarterly (starting January Indexed at 2 3570 000 $56,000 per year Paid monthly Indexed at 25% Not Indexed Afterwards $75,000 per year Paid monthly Not Indexed Up to overhaul asta Operating costs 5% of revenues 54 500 per year Paid monthly Indexed at 3% $1.000 in April $3.000 in October Indexed at 2 $3.000 per year Pad monthly Indexed at 15 Afterwards of revenues Case Questions Directions: Using the data provided, and your knowledge of finance, answer all questions listed below. Qualitative questions can be addressed in a word document, calculations, Including all work required for each question should be submitted on an Excel spreadsheet. Note on Question #6: NPV calculations should use the formula for TVM based on =NPV(rate, value 1 value 2...)+original purchase price as a negative. You DO NOT need to calculated the XNPV values. Question #1 What are the total revenues for Property 1? Question #2 What are the revenues for Property 2 in September 2019? Question #3 What are the costs for Property 3 in October 2020? Question #4 What are total revenues less total costs for Property 4a? Question #5 What is the absolute value of difference in operating costs between Properties 4a and 4b? Question 16 Using the provided data, calculate the NPV for each project Question #7: Analyzing your data from Property 4, should you complete the overhaul (choice B) or continue to rent as is (choice A). Explain your reasoning, Question #8: Which properties should the company invest in subject to the constraint on purchase price in order to maximize their increase in net present value? Question #9: Based on the provided information, which property would you choose to move forward with if you were choosing an investment? Why would you choose this property? Question #10: Based on the provided information, which property is the worst choice for investment? Why is it the worst choice? Question #11: What additional information would you want to know before making a final selection for a property Investment? Section 2: Case Study - Castles In The Air INTRODUCTION All the inputs mentioned below are provided in the workbook for this case study You are working for a company which is considering purchasing a number of properties You have been asked to model each of the available investments to assist in choosing a portfolio (up to a maximum purchase price of $1 700,000) that maximizes the value to the company, as measured by an increase in net present value The company's cost of capital is 8% AVAILABLE INVESTMENTS Full details of the investments may be found on the table on the subsequent page The purchase price for each property should be paid on 31 December 2017 The company holds the property for a number of years (the investment length) During the investment length, the company receives rental revenue and pays operating costs Where amounts are indexed the base date is 1 January 2018 and the index should step annually (e a full year of indexation should first be applied on 1 January 2019) Do NOT round infiated prices to whole cents in interim calculations At the end of the investment length the company will sell the property for the terminal value The terminal value is not indexed For property 4 the company has the option of overhauling the property Details of the property without overhaul are listed under property 4a Details of the property with overhaul are listed under property 46 The overhaul cost should not be considered in the purchase price constraint It is NOT possible to invest in both property 4a and property 4b The overhaul cost (which is not indexed) Prepare your model and then use it to answer the given questions. When finished, please upload your workbook. See questions page for further directions Round 1 Section 2 - Case Study Information Pack INVESTMENT DETAILS Purchase Price Investment length Overhaul cost Property 1 $450,000 5 years NIA Property 2 $550 000 5.5 years Property $500,000 6 years NA Property 4 $470 000 4 years NA NA Property 4b As 40 As da $125 000 paid 31 Dec 2010 5675,000 Up to overhaul as da Terminal value Rental revenue $600.000 $45,000 per year Paid monthly $575.000 $60,000 per year Paid quarterly (starting March Indexed at 3% $550,000 $55,000 per year Paid quarterly (starting January Indexed at 2 3570 000 $56,000 per year Paid monthly Indexed at 25% Not Indexed Afterwards $75,000 per year Paid monthly Not Indexed Up to overhaul asta Operating costs 5% of revenues 54 500 per year Paid monthly Indexed at 3% $1.000 in April $3.000 in October Indexed at 2 $3.000 per year Pad monthly Indexed at 15 Afterwards of revenues Case Questions Directions: Using the data provided, and your knowledge of finance, answer all questions listed below. Qualitative questions can be addressed in a word document, calculations, Including all work required for each question should be submitted on an Excel spreadsheet. Note on Question #6: NPV calculations should use the formula for TVM based on =NPV(rate, value 1 value 2...)+original purchase price as a negative. You DO NOT need to calculated the XNPV values. Question #1 What are the total revenues for Property 1? Question #2 What are the revenues for Property 2 in September 2019? Question #3 What are the costs for Property 3 in October 2020? Question #4 What are total revenues less total costs for Property 4a? Question #5 What is the absolute value of difference in operating costs between Properties 4a and 4b? Question 16 Using the provided data, calculate the NPV for each project Question #7: Analyzing your data from Property 4, should you complete the overhaul (choice B) or continue to rent as is (choice A). Explain your reasoning, Question #8: Which properties should the company invest in subject to the constraint on purchase price in order to maximize their increase in net present value? Question #9: Based on the provided information, which property would you choose to move forward with if you were choosing an investment? Why would you choose this property? Question #10: Based on the provided information, which property is the worst choice for investment? Why is it the worst choice? Question #11: What additional information would you want to know before making a final selection for a property Investment