APPRAISING & FINANCING A CONSTRUCTION DEVELOPMENT

APPRAISING & FINANCING A CONSTRUCTION DEVELOPMENT

Appraising & Financing a Construction Development: Assignment 2

Answer 1

Discounted Cash Flow - To Find Land Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

Construction Cost

Total Fees

Developer's Legal Fee

Developer's Profit

Total Cash Flow

PV

Discounted Cash Flow

0



1.0000



1

£614,432 £110,632 £100,782 £100,682 £926,527

0.9936

£920,604

2

£614,432 £110,632 £100,782 £100,682 £926,527

0.9873

£914,719

3

£614,432 £110,632 £100,782 £100,682 £926,527

0.9809

£908,871

4

£614,432 £110,632 £100,782 £100,682 £926,527

0.9747

£903,061

5

£614,432 £110,632 £100,782 £100,682 £926,527

0.9684

£897,287

6

£614,432 £110,632 £100,782 £100,682 £926,527

0.9623

£891,551

7

£614,432 £110,632 £100,782 £100,682 £926,527

0.9561

£885,852

8

£614,432 £110,632 £100,782 £100,682 £926,527

0.9500

£880,188

9

£614,432 £110,632 £100,782 £100,682 £926,527

0.9439

£874,561

10

£614,432 £110,632 £100,782 £100,682 £926,527

0.9379

£868,970

11

£614,432 £110,632 £100,782 £100,682 £926,527

0.9319

£863,415

12

£614,432 £110,632 £100,782 £100,682 £926,527

0.9259

£857,895

13

£614,432 £110,632 £100,782 £100,682 £926,527

0.9200

£852,411

14

£614,432 £110,632 £100,782 £100,682 £926,527

0.9141

£846,962

15

£614,432 £110,632 £100,782 £100,682 £926,527

0.9083

£841,547

16

£614,432 £110,632 £100,782 £100,682 £926,527

0.9025

£836,167

17

£614,432 £110,632 £100,782 £100,682 £926,527

0.8967

£830,822

18

£614,432 £110,632 £100,782 £100,682 £926,527

0.8910

£825,510

19

£614,432 £110,632 £100,782 £100,682 £926,527

0.8853

£820,233

20

£614,432 £110,632 £100,782 £100,682 £926,527

0.8796

£814,989

21

£614,432 £110,632 £100,782 £100,682 £926,527

0.8740

£809,779

22

£614,432 £110,632 £100,782 £100,682 £926,527

0.8684

£804,602

23

£614,432 £110,632 £100,782 £100,682 £926,527

0.8629

£799,459

24

£614,432 £110,632 £100,782 £100,682 £926,527

0.8573

£794,348

25

£614,432 £110,632 £100,782 £100,682 £926,527

0.8519

£789,269

26

£614,432 £110,632 £100,782 £100,682 £926,527

0.8464

£784,224

27

£614,432 £110,632 £100,782 £100,682 £926,527

0.8410

£779,210

28

£614,432 £110,632 £100,782 £100,682 £926,527

0.8356

£774,229

29

£614,432 £110,632 £100,782 £100,682 £926,527

0.8303

£769,279

30

£614,432 £110,632 £100,782 £100,682 £926,527

0.8250

£764,361

Totals

£18,432,945 £3,318,945 £3,023,460 £3,023,463 £27,798,813 £25,204,376

Net income

26,000

+ Depreciation

2,000 - Increase in Accounts receivable

(4,000)

- Increase in Inventories

(2,000)

- Decrease in Accounts payable

(2,000)

Net Cash Flow from Operating Activities

20,000

 

 

Purchase of Gross fixed assets

(15,000)

Net Cash Flow from Investing Activities

(15,000)

 

 

Change in Notes payable

3,000

Change in LT Debt

8,000

Change in Common Stock

15,000

- Payment of dividends

(18,000)

Net Cash Flow from Financing Activities

8,000

 

 

Change in Cash

13,000

Revenues, £ 25 × 1,000,000£ 25,000,000

Variable cash costs, £ 10 × 1,000,000 10,000,000

Cash contribution margin 15,000,000

Fixed cash costs 5,000,000

Cash inflow from operations£10,000,000

Net present value:

Cash inflow from operations: £10,000,000 × 3.433£34,330,000

Cash outflow for initial investment (30,000,000)

Net present value£ 4,330,000

5% reduction in selling prices:

Revenues, £23.75 × 1,000,000£23,750,000

Variable cash costs, £10 × 1,000,000 10,000,000

Cash contribution margin 13,750,000

Fixed cash costs 5,000,000

Cash inflow from operation£ 8,750,000

Net present value:

Cash inflow from operations: £8,750,000 × 3.433£30,038,750

Cash outflow for initial investment (30,000,000)

Net present value £ 38,750

5% increase in the variable cost per unit:

Revenues, £25 × 1,000,000£25,000,000

Variable cash costs, £10.50 × 1,000,000 10,500,000

Cash contribution margin 14,500,000

Fixed cash costs 5,000,000

Cash inflow from operations£ 9,500,000

Net present value:

Cash inflow from operations: £9,500,000 × 3.433£32,613,500

Cash outflow for initial investment (30,000,000)

Net present value£ 2,613,500

Sensitivity analysis enables management to see those assumptions for which input variations have sizable impact on NPV. Extra resources could be devoted to getting ...