Anderson Streets Harvard Case Solution & Analysis

Problem Statement

Despite Leonard is naïve in the real estate, he has to manage mortgage financingfor his business, which is absolutely a daring option for him because he has no idea about the evaluation of mortgage finance and its impact on expected income, though the business is highly profitable, which has eventually become a problem for Mr. Leonard.


In order to resolve the problem, an analysis has done on some facts and figures which would give a reasonable support to decision. Moreover, there are certain underlying assumptions taken for the analyzing purpose to inculcate charges in mortgage financing decision. However, the decision goes to the favor of amortizing the cost of renovation. In additionNet present value comes out to be positive which implies the project is financially viable. Recommendations are made on the basis of analysis which is done and shown in an excel file named as valuation, in the “Appendix B”.


The reason of choosing this decision is because of positive net present value and in collaboration with “Haris bank”. Because they are providing a better guideline for building up an effective decision for the small entrepreneurs. Furthermore, Leonard has so many advantages with respect to the project.  Now the pros and cons are highlighted that does a reasonable deal in decision making.

Pros and Cons

Pros Cons
Attractive towards customers Heavy cost in the year one
Good return benefits No knowledge of Mortgage Charges
Good initiative for a small entrepreneur No such expertise in this industry
Understanding for the mortgage dealing Charges burden


Certain assumptions are taken to make a discounted cash flow approach analysis, as follows:

   Discounted Rate is assumed to 15% on average of returns

   there is no such extra cost of mortgage charges, except the constant rate

   Mortgage charges are assumed to be 10% as for interest and principal payments

   Tax charges and other cost are given in the case

   Renovation cost is amortized through the period of 20 years

These assumptions are applied to make an analysis which is annexed to this report through “Appendix A” and “Appendix B”. Please go through all excel files for any discrepancy.


On the basis of analysis, the decision favors to the startup. The Leonard should gain some knowledge of broker dealing which would be good for its future endeavors.

Other Factors

Apart from the financial factors, Leonard has to consider other non-financial factors as well for its valuation. Prior to reach out to a final conclusion he should look into from various dimensions. He can have a consultancy of one of his friend (mentioned in case) dealing in legal advisory services. This project will be based on 3 to 5 years having the flow of cash amount $30,000 and financial burden ofrated 15 %. This factor is also necessary for the evaluation of enterprise’s performance.


In order to make an appropriate decision, Leonard has to scrutinize and accommodate the effects of financial and non-financial factors in analysis. There may be so many alternatives available for any decision but to avail the best among all alternatives is the optimal solution. The significance of considering other factors is providing a true essence to reach at an optimal solution.


The main aspects which have to identify by Leonard to understand the main essence of the real estate world which reflects on the term of heavy investment with more return. In short as to financial management says, ‘when there is more risk there is  more return’. For these aspects owner will always have to trade off some of its matters for the betterment of the future environment. Moreover, Leonard have understand both the analysis of the factors then after making an effective decision on it. On the other hand, he has to evaluate the crucial reality of the facts which will be the major portion of it.


Borrowing a new loan with a mortgage can be better for the short period of time. It aims to manage debt solution for new investment in gaining more rental. But there are no legal bindings as to understand and deposit more purchase price which it is in the range of 5% to 10%. So it cites a favorable ground for a better decision.


On the basis of analysis of property purchase through mortgage charge made, Leonard is highly recommended to go for first decision because it has a positive NPV of 20 years that means the decision is financially viable. Since property is a long term assets so he can expect to have incremental cash inflows over the period of time in the form of lease rentals.........................

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