21 Jun Assessment 2: Case Analysis Assignment A small industrial unit in Albany was sold in 2016 where the selling price was within $10,000 of the asking price. You are to assu
Assessment 2: Case Analysis Assignment A small industrial unit in Albany was sold in 2016 where the selling price was within $10,000 of the asking price. You are to assume that you are looking to purchase the property to add to your property company. As part of your due diligence you need to undertake an NPV analysis of the property. Further, you are to assume that you are conducting the analysis in June 2016. In other words, your starting point for the NPV analysis should be June 2016. Please read carefully the Information Memorandum prepared by real estate agent Dave Lane from Harcourts Commercial (attached file name: IM_Unit 18, 14 Airborne Rd2.pdf). This is the only information you have been supplied with. Your analysis should be based on a 10-year investment horizon so you will need to estimate a selling price for the property in 10 years. There is no correct answer for this; however, in the word document you should detail the assumptions made to support your estimation. Your investment in the property will be financed with bank debt and you require a deposit of 30% to 50% with monthly repayments and a term of 20 to 30 years. You should research mortgage rates offered by major banks and use an appropriate rate and term. You should decide on these variables and justify your decision. The property is both currently rented and you have been supplied some information on the rent paid and expenses in the Information Memorandum (you should note that maintenance and insurance is paid by the body corporate). Consideration should be given as to how the revenue and expenses are likely to change over the term of the investment, so please use the given information as a starting point for your analysis. Expenses relating to the initial property purchase and sale, such as valuations and legal and selling expenses, should also be estimated and incorporated. As you own a property company you should consider the tax implications of this investment. The tax rate you should apply to taxable income is 28% and you can work on the assumption that any losses made in the investment can be used to offset profits from other parts of the company (effectively giving a tax credit). The structural component (improvement) of the property depreciates as the property ages. For the purpose of this assignment, assume a straight line depreciation profile over the 50 years of the property’s life and that the depreciation applies to the whole structural component (that is, every built component or improvement) of the property. As a starting point, use the rating valuation information on land and improvement values provided in the Information Memorandum to calculate the structural component share of the total value of the property. Please identify all significant risks in the investment and undertake appropriate analysis. Remember there is not one particular answer that is correct; you should provide justification for your answer. NB: Please do not under any circumstance contact Dave Lane, Harcourts, the property owners, the tenants or visit the site of the two properties. If you do so your assignment will be invalidated. ——————
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