Waltz on the Danube

1294 Words Mar 24th, 2011 6 Pages
Answer 1
Is there and adequate market in Gyor? Are rents adequate to support this development?

Gyor was chosen as the primary project site by ECE after careful consideration, under the assumption that its market was sufficient to support the project. Phillip von Wilmowsky base assumption were that Gyor enjoys strong demographic and economic potential, high accessibility and minimal competition. And more specifically, these were the main rational points underlined by von Wilmowsky assessment:
• Hungary’s Macroeconomic Condition † As of the case date, Hungary is in the midst of integration with the EU economy. Hungary enjoyed several years of high GDP growth, high employment rates and an appreciating currency. Hungary has still half
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If I were the Investor, I would want to be compensated to the tune that my risk margin would exceed an IRR of 20%. More specifically, I would demand that ECE two revise its financial estimates of the project. More specifically, lower the building costs significantly and use less aggressive assumptions towards, rent rates and their growth.
If the current estimates are not changed, and I would assume the following more conservative assumptions, my investment would not be viable: o A total project investment of 75 million Euros, with a share of 67%. o A cap rate of some 9% (like the one in Budapest). o A rent growth rate of 4%.
In order to reach a 20% IRR rate it would not be sufficient for me to receive a 12% preferred interest rate and 67% percent of the upside. In order to improve my IRR I would have to decrease my share of the project (to some 50%). In that case, my offer would not be viable.

Answer 3

What factors should you take into consideration to perform sensitivity analysis? How should Phillip take these assumptions into consideration to evaluate the viability of this project?

As shown in answer 2, the project has certain viability problems if von Wilmowsky’s assumptions are taken as the base for the financial estimates. I would test the effect of