Recreational Properties Case Essay examples

The third scenario was ignoring the option to invest in the second-generation project and selling the equipment in year 2. We evaluated this option as a put option. First, we calculated the probabilities for going up and down based on the assumption of a risk neutral word. As a result, the probability of going upward is calculated as 0.3375 and downward probability is 0.6625. In order to determine the present value of all the sequence cash flow at the end of year 2, we calculated the upside change rate and downside change rate as 64.87% and -39.35%, respectfully. The next step is to analyze the option value by using the “Binomial Tree” method. In order to determine the present value of all the subsequence cash flow at the end of year 2, we calculated the cash flow at each node on the tree, until 2006. We discounted all the cash flow at the risk free rate at 10%. The End of Year NPV of all the subsequence cash flow at Year 2 is calculated as $7,571,752, and the selling price of the equipment at end of 2 is $4,000,000, which is the salvage value. We found the NPV of selling the machine at end of Year 2 to be -$2,951,861 as of Year 0, which is negative. The APV of the project after adding the option turned out to be -$6,321,932. This negative APV suggest that the

Decision Making Area 3:Investment Decisions * Table of Articles * Summary of Articles * Observations * Conclusion

Agro-Chem, Inc. is a regional producer of agricultural chemicals based in Houston Texas that needs help making a lease versus purchase decision. By understanding the material presented, we will be able to come to a decision. However, after reviewing the information presented, there are a few problems that need to be investigated before finalizing our recommendation. Agro-Chem, Inc. chose to go with the financial manager’s idea of using a discount rate of 14% (average risk) to figure out the present value costs of leasing and purchasing even though the assistant treasure suggested a 12% (low risk) discount rate. Agro-Chem, Inc. brought in the company’s CPA to help settle the debate

Table 7 in the detailed analysis above shows the summary of the Discounted Cash Flow analysis performed for each of the four potential properties considered for investment. From the chart below, we observe that of the four properties, TFB has the maximum increase in reversion value at the end of the holding period, i.e. 10years. On a primarily income generation potential basis, Alison Green, with a Net Present value of the future rents at $734.29 looks attractive among the four options. Looking at the Investment ranks of the four properties with Simple returns and Discounted returns variables, Alison

Mr. Alexander is a gentleman that is looking to build his investment portfolio through residential real estate. He is looking at investing in a 4-plex in a historical district located within Boston, Massachusetts. The building is located on Revere Street and has a listing price of $350,000. Mr. Alexander is evaluating the possible commitment to understand what he stands to gain from the annual cash flows while at the same time understanding the risks involved. The subject property is located within a historical district and is not yet capable of housing tenants. Property will require significant improvements prior to inhabitation. Client

Are there other considerations or calculations that should be taken into account before a final decision is made?

Option 2 (Proceed with Mid-Rise Apartment Complex, Selling in Year 10): While replacing the current structure with a more appealing mid-rise apartment complex would increase the market value of the property, it would also require financing and additional investments. Thus far, Sexton has run into several problems, beginning with the planning commission, and now higher cost estimates, financing and timing issues. Even if Sexton were to obtain financing and somehow meet the January 2005 target date, his original estimates of rental income and cash flow analysis are still not guaranteed. Exhibit 2 provides a net present value range between 103,000 and $214,000 for proceeding with the mid-rise apartment complex and selling in year 10 based on a range of cap rates.

Following this review, it is my recommendation that we enter into a contract for the purchase of the equipment in question before the end of the year for the following reasons. Currently, our tax rate is not particularly favorable. We have experienced some small reductions in the late 1970’s, however the introduction of Supply-Side economics

options should be weighed to decide what is the best option for the individual.An underlying

One alternative is to maintain the status quo. In other words, the firm may decide to make slight modifications to their sales and operational strategies for the Dixie Land Homes lot. An additional alternative is to liquidate Dixie Land Homes' inventory and dissolve the lot. Another alternative is to relocate the lot to a location east of the main Meyer Mobile Homes location. Lastly, another alternative is to add to the lots' selection in hopes that an increase product

It is important to note the large discrepancy in AMG’s and Forsythe’s estimates of the book value of hardware. Based on Forsythe’s 10.1% equity insertion rate, they are estimating the salvage value to be $87.10/unit, versus AMG’s $150 estimate. It is possible Forsythe has inflated this estimate to increase the lease payments, that AMG is overestimating the value, or a combination of both. If we calculate the NPV of the 24 month buying option by using Forsythe’s equity insertion rate as the salvage value, there is an NPV of $(5,217,043), making this option even less attractive.

Henrion next specifics the insights gleaned from the sensitivity analysis. The team understood that, given the wide range of opinions from stakeholders, the outcomes may not be precise. Because of this understanding, the team performed sensitivity analysis on the results. Finding this utility percent difference allowed the team to understand the importance of the eight attributes the stakeholders evaluated. Here they found that strict compliance due to the lease agreements as the main barrier for options other than

What are the key takeaways to remember when determining future lease versus buy decisions of this magnitude?

In addition, in terms of break-even point and safety margin, Baldwin was on the edge of losing sales due to the poor economic, resulting in a closer distance of the break-even point. To avoid the risk of making a loss rather than a profit, Baldwin should take the offer. However, before that Baldwin should also think about its cash flow. From the income statement it seemed that Baldwin could not bring out enough cash to the project. Besides, since production would increase, more warehouse space would be required which would incur further costs. Besides, above assumption didn’t include risk of losing more sales .Moreover, based on the current debt equity ratio, high leverage level would happen if Baldwin financed by loan since majority of its loan were short- term rather than long- term.

Taking into account that the first option is not a likely option based on our current