Question

MSULUI If you desire part You have estimated the cash flows fr PGI 2 Tacire partial credit on these problems, show your work. d the cash flows for a potential acquisition: 1 2 250,000 242,500 254,625 264,810 272,754 Vacancy -17,500 -16,975 -17,824 -18,537 -19,093 232,500 225,525 236,801 246,273 253,661 -104,625 -101,486 -106,561 -110,823 -114,148 127,875 124,039 130,241 135,450 139,514 -92,663 -92,663 -92,663 -92,663 -92,663 35,212 31,376 37,578 42,787 4 EGI Expenses NOI Debt Service BTCF Additional information: 46,851 - The investor believes the overall market required rate of return is 12% and he will make his purchase offer based on a value determined by DCF. He anticipates holding the investment for five years. Over this period, he anticipates property values will increase 3% per year. Projected (future) sales costs are 6.0% (% of FSP). Questions: a (12 points) What is the estimated overall value of the property based on DCF analysis (please do not estimate a terminal cap rate)? Answer: 358.894 1.6

Answer 1

Hi

Since it is clearly mentioned, the value of property is to be estimated only on the basis of Discounted Cash Flows (DCF) analysis. Also, it is stated that the terminal capitalisation rate and terminal value is to be ignored.

Accordingly, here is the valuation as per DCF

Α D E F G H BTCF 35,212.00 12% Discounting Rate Discounting factor Present Value 31,376.00 12% 0.80 25,012.76 37,578.00 12% 0.71 26,747.28 4 42,787.00 12% 0.64 27,191.91 5 46,851.00 12% 0.57 26,584.52 0.89 31,439.29 Total Value of property based on DCF 136,975.75

With Formulae-

I c D E F G H BTCF Discounting Rate Discounting factor Present Value 35212 31376 37578 42787 46851 0.12 0.12 0.12 0.12 0.12 =1/(1+C4) C2 =1/(1+D4)D2 =1/(1+E4)^E2 =1/(1+F4)^F2 =1/(1+G4) G2 =C3*C5 =D3*D5 =E3*E5 =F3*F5 =G3*G5 Total Value of property based on DCF =SUM(C6:66)

Hope this helps!

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