Background

Judy Deright and John Deright both intend to diversify their investment. To achieve their desire purpose which is diversification of risk. They intends to invest in real estate but for a short period so that they can increase the future value of their investment. Four properties have been considered by them on which they can invest but the critical factor of investment will be growth in the future value of the property.

Derights’s does not have any experience in the real estate they don’t know on what criteria they should evaluate these properties to tackle these problem they consult with Angus Cartwright. Deright’s intends to sell the properties in future therefore evaluation criteria at the time of purchase is essential.

Therefore, it is necessary for Cartwright to evaluate all four properties at the time of purchase. So that he can advise Deright’s about the future worth of the properties. The four properties under the consideration are Alison Green, 900 Stony Walk, Ivy Terrace and The Flower Building. Results of valuations as describe in exhibits will clearly shows the value of properties from purchase to sell.

Angus Cartwright Iv Harvard Case Solution & Analysis

Problem Statement

The biggest issue in selecting the one or all properties for Deright’s are valuation criteria. An appropriate valuation criteria would enable them to purchase and hold the property for a certain period that will increase their net worth. The valuation depends over many factors like tax rates, interest rate, inflation rate and occupancy rate. Any fluctuation in these factors will change the valuation drastically. Therefore Cartwright have to give a proper consideration over them.

Properties Valuation

The four properties are valued using the assumption of Angus Cartwright. The key factors of the valuation like tax rate, interest rate, inflation rate, occupancy rate are those provided by Angus Cartwright. For our valuation purpose we assume that Derights’s will hold the properties for 10 years. However in actual they will decide they disposal date. But at the time of sale there will be capital gains on the properties.

Alison Green

The first property Alison Green’s outcome shows that it would generate 70.61% cash flow before tax. However the future value margin is 49.21%. At the time of sale Cartwright need to invest some of expenditure to enhance the value of the property which have some interest cost. So this will further deteriorate the future value. Hence it will be costly to invest in this market. Furthermore the reserves for future expenditure does not attract immediate tax benefit. Hence it seems a bad decision to invest in it.

900 Stony Walk

The second property 900 stony walk has an IRR of 5.24%. And has the second highest NPV among the four properties. The property will generate highest cash flow before tax and interest then Alison Green as 78.32% the tax benefit is also high but the future value of the property is lower than Alison green which is just 27.03%. Although the interest rate of amortization is 6.5% greater than Alison Green but the amortization period is also longer one this will decrease the amortization in early years hence company has more amortization to capitalize at the time of sale. Hence this will further increase the future value of the property. Therefore investment in it is more beneficial than Alison Green.............

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