South Park Essays

Together with the discount rate we calculated from the first part, we get the NPV of this project is $8737.6. Under this valuation, the $12M offer is high and that Dixon should not make the investment without the laminate technology.

3. Estimate the project’s NPV. Would you recommend that Tucker Hansson proceed with the investment?

Right now, the median price for a home in the area is $450,000. The sales price has risen by $75,000 in just the last year. During the same year, the average price per square foot rose from $224 to $238. Since the sales price has risen by 20 percent in just the last year, right now is a good time to enter the marketplace before prices

Commercial’s NPV is $.1516 million (see Table 3). This was determined by using the present values of the four year lease agreement between Prudent and Commercial. We concluded that Commercial’s discount rate will be 10% because of their opportunity cost. Commercial needs to have a residual value on the DAS of 6.8 million or greater, which will give them a positive net present value. Therefore, if their net present value shows negative, they would not want to lease to us. Assuming Commercial receives the same 5 year MACRS rate on the equipment purchase, then the system should be worth 7.01 million (book value) at the end of year 4 (see Table 4). This allows Commercial to have a positive NPV of $.1516 million (see Table 4). Therefore, they would be willing to lease the DAS to us.

Mr. Alexander is a gentleman that is looking to build his investment portfolio through residential real estate. He is looking at investing in a 4-plex in a historical district located within Boston, Massachusetts. The building is located on Revere Street and has a listing price of $350,000. Mr. Alexander is evaluating the possible commitment to understand what he stands to gain from the annual cash flows while at the same time understanding the risks involved. The subject property is located within a historical district and is not yet capable of housing tenants. Property will require significant improvements prior to inhabitation. Client

Even when assuming these conditions most favorable to Laflin, his Net Present Value is negative, and his Levered IRR is still lower than his r, meaning the return is less than the risk associated with this investment. (See New Tenants)

* A new project idea which requires an investment of $2 mm and will generate total cash flows (including any salvage or terminal value) next year of either $4mm (recession) or $8mm (boom). The firm has not yet raised the cash to make this investment, but the market is aware of the investment opportunity.

2. The current NPV is negative. One way to save money would be to reduce consulting costs. Please set the average consulting cost per month in cell b33 to $5000. At what discount rate is the NPV for the project 0?_____0.026____

Thus, by year three the company will be making a profit off the investment as year three is 86.73 million profit by 55.35 cost giving the company a 31.38 million dollar surplus. Generally, a period of payback of three year or less is acceptable (Reference Entry) causing this project to be viable based off the payback analysis. Although, these calculations are flawed. The reason for this is because the time value of money is not taken into effect when calculating payback periods which is where IRR can further assist in a more realistic financial picture (Reference Entry).

Option 2 (Proceed with Mid-Rise Apartment Complex, Selling in Year 10): While replacing the current structure with a more appealing mid-rise apartment complex would increase the market value of the property, it would also require financing and additional investments. Thus far, Sexton has run into several problems, beginning with the planning commission, and now higher cost estimates, financing and timing issues. Even if Sexton were to obtain financing and somehow meet the January 2005 target date, his original estimates of rental income and cash flow analysis are still not guaranteed. Exhibit 2 provides a net present value range between 103,000 and $214,000 for proceeding with the mid-rise apartment complex and selling in year 10 based on a range of cap rates.

Looking at this in terms of an internal rate of return – the one year return can be calculated as ($27.3/24) – 1=.1375 or 13.75% (this number has been rounded up to .14 or 14% in Exhibit 7). Note that whenever this IRR is above 12%, the sequel will be positive NPV.

When we look at the interest coverage between 75 percent occupancy and 50 percent occupancy of mortgage financing, it is possible to say that at 50% earnings do not cover the interest costs. Cash flows from operations (Earning before interest and tax plus depreciation) do not cover costs and principal repayments.

Such value price represents interest in the following assets of the LLC, with such total purchase price includes the assets as follows:

It is important to note the large discrepancy in AMG’s and Forsythe’s estimates of the book value of hardware. Based on Forsythe’s 10.1% equity insertion rate, they are estimating the salvage value to be $87.10/unit, versus AMG’s $150 estimate. It is possible Forsythe has inflated this estimate to increase the lease payments, that AMG is overestimating the value, or a combination of both. If we calculate the NPV of the 24 month buying option by using Forsythe’s equity insertion rate as the salvage value, there is an NPV of $(5,217,043), making this option even less attractive.

Financial risks include the short payback period. A 3-year payback period would not allow Hansson the opportunity to breakeven. With a negative NPV in the first 3 years Hansson’s decision to invest in the project would be based on his ability to negotiate a longer contract time. The Net Present Value (NPV) would have to be examined in tandem with the other non-financial variables.