Angus Cartwright

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Angus Cartwright Case Study

In September 2003, John DeRight and Judy DeRight, both cousins, decided that they both wanted to invest in real estate. The cousins felt that real estate would allow them the “benefits of diversification, protection from future inflation, and tax advantages.” John, a risk averse person, was a retired businessman and was willing to spend $9 million in this investment. John would rely on stock dividends and other income that totaled approximately $1 million. On the other hand, Judy was a risk tolerant businesswoman who owned her own chemical company and had $16 million of funds available for investment. Judy’s after-tax income came out to be approximately $1.1 million.
The cousins contacted Angus Cartwright
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Of the four properties, Stony Walk has the highest net cash from sale ($8347.87), net book value ($9649.72), amortization and reserve, taxable income, tax benefits, and monthly mortgage rate ($8000). However, Stony Walk has the lowest gain on sale. The next property presented to John and Judy was Ivy Terrace, an 80-unit apartment under construction in Arlington, Virginia. Even though this property has the lowest Net Present Value ($619) and lowest monthly mortgage ($5,500), there exist the greatest increase in Cap Rate from purchase to sale price (9.12% to 9.51%). Based on calculations, 72% of total benefits will be derived from cash flow while 41% of total benefits will come via future value. This property has the second highest After Tax Cash Flow (ATCF) but has the lowest remaining loan balance at sale ($4583.03), net cash from sale ($4868.34), net book value ($5545.45), and capital gains. Ivy Terrace has the highest depreciation and has the lowest percent of total benefit from future value and lowest amortization and reserve among the four properties. Finally, the developer of Ivy Terrace guarantees 93% occupancy. The final property Cartwright presented to John and Judy DeRight was the Fowler Building, a two-story 60,000 square foot office building that was still under construction. This property has the highest profitability index and breakeven occupancy but has the lowest
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