Angus Cartwright Iv Case Study Solution
Amber Terrace:
Ivy Terrace is a 75-unit building in Arlington, which can be rented to small service companies. The building has a cost of 11 million dollars and is depreciated on a straight-line basis, over a period of 27.5 years. The real estate mortgage is valued at 7 million dollars, with an interest rate of 4.25 percent. The building generated 4.5 million Net Present Value (NPV), which is lower than the Stony Walk and Fowler buildings, but much higher than Alison Green. The internal rate of return for Ivy Terrace and Alison Green is almost the same, i.e. 13.2 percent, which is lower than the internal rate of return of Fowler Building and Stony Walk. The calculations are shown in Exhibit 1 of the document.
The future value of the company is 95 percent, which is higher than the remaining buildings, and the capitalization rate at the time of purchase is 6.61 percent higher than the rest of the buildings. Ivy terrace seems to be the most profitable investment in terms of increasing profits and increasing the value of capital. The loan to value ratio is 64 percent, lower the rest of the buildings, indicating that the financing required to purchase paved roads will be cheaper and debt service coverage will be higher than other investments. The calculations are shown in Exhibit 3 of the document. This indicates that the largest cash flow is used to pay off immediate debt from funds borrowed to purchase the building. The calculations are shown in Exhibit 2 of the document
Conclusion
The first property Alison Green’s outcome shows that it would generate 70.61 percent cash flow before tax. However, the future value margin is 49.21 percent. 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.
Because the company’s property investment decision is based on the return on money and multiple cash investments, investors should invest in Ivy Terrace, as this project can deliver the best performance. Alison Green, on the other hand, has a high capitalization rate, which is an important indicator for real estate companies when evaluating projects. Therefore, investors may choose to invest in Alison Green because its multiple investment units are larger than the rest of the mentioned properties........................................
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