Angus Cartwright Case Solution
Introduction
Angus Wright IV was a Virginia based investment advisor having a conservative approach towards risk. (Kenneth J. Hatten W. J., 1975)In 2013, he started providing consultancy services the Judy DeRight and John DeRight, they both were their relatives. as they wanted to diversify their business towards real estate to enjoy payback of risk improvement, security from inflation and tax advantages. Angus identified four properties as suitable for the two clients. The Alison green was the first client he was the owner of the 100 units apartment in the city Montgomery. The second client was the maryland owner of the 900 units property of Stony Walk, which was an workplace construction available for rent to small service firms. The third and fourth properties was fowler Building and Ivy terrace, both properties were under construction and located in Arlington.
Since both of the clients did not have any experience of real estate properties, they approached Angus to perform detailed financial analysis and evaluation of each property to understand which of the suggested properties will provide maximum financial benefits, and will generate higher worth at the time of its sale, since the clients are intending to sell the properties in future. clients was wish to gain the 10% of investment return not including tax.
Mr. Alison green, was planned for financed with the mixture of equity and debt . Stony Walk was planned to financed with the backed security and commercial mortgage. The fowler building and Ivy terrace was planned to finance through the investment of 421 million in 10 years and $7million in 10 year respectively. While performing financial assessment conservative assumptions were used, and measures like capitalization rate, cash on cash return and investment multiples were used as the decision criteria.
Problem Statement of Case
Both John Deright and Judy Deright had different approaches towards risk, while John was a risk averse, Judy was a risk seeker. None of both had any experience of retail investments and approached Angus to evaluate all the properties for them, so that they could a reach a decision regarding which property to purchase. The price of and financial benefits offered by each property has to be evaluated in detail, with appropriate technique. On the other hand, to assess property, various factors and assumptions have been taken, such as: inflation rates, growth rate, tax rates, occupancy charge etc. Any change in these factors or any illogical assumption will change the value of the properties, and hence will result in inaccurate choice making by the investors. Therefore, Angus has to take logical assumption, and has to evaluate the properties through multiple techniques to ensure that a right decision is made.
Situation Analysis
After reviewing the case and the investments in the project the following calculations are be done in which the cash flows, breakeven point and other analysis is also involved which helps in better understanding of investments. The results of the analysis is dependent upon various key factors like occupancy levels, tax rates, interest rates, inflation rates determined by Angus. for the analysis purpose we assume the 10 years period for all the investors.
Alison Green:
This client was the owner of 100 units apartment in the country Maryland. The cost of the building is estimated to be $20 million, which is financed through a mixture of debt and equity, and has an possession rate of 95%.
Upon evaluation, Alison Green’s generated positive NPV worth estimated to be $18, 03, 000 and its achieve rate of return is evaluate as 0.1391. The NPV was calculated at the discount rate of 10%, and a tax rate of 39.6% was used. This property achieved return of cash 0.108. capitalization rate of 7.25% and investment multiple of 3.6 million. It is likely that this property will be purchased on the basis of IRR and cash on cash return, as both the investors demand return of 10% and more. (See Appendix 1)
The loan to value ratio achieved by the investment project is 70%, which indicates that less finance will be borrowed as compared to its size, and the added margin of 28.8% achieved by the project makes it profitable as compared to other projects. However, comparison should be made with other properties before taking the final decision….
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