Angus Cartwright Harvard Case Solution & Analysis

Angus Cartwright Case Study Solution

The following financial analysis has been made in order to advise Dewright to make appropriate investment in order to get higher cash flows and capital gains when selling a property in a short time period. Therefore, as per the results of financial analysis, it has been identified that investment should be made on the Fowler Building as it is generating higher cash flows. Moreover, it is also identified that this property would be determining the highest capital gains among all analyzed properties at the time of selling among.

Dewright wanted to make an appropriate investment for a short time period that is for one year only. He decided to make investment in real estate because this field has least chances of loss as the risk becomes diversified. However, as Dewright does not know about the valuation of properties, therefore, Angus Cartwright was hired as an advisor to do appropriate analysis of all four properties.

The analysis has been performed by calculating cash flows of each property along with the depreciation and amortization. Moreover, the interest rate and capital gains have also been calculated in order to identify the level of profit earned at the time of selling property. In order to avoid any future threat, certain assumptions have been implied and selling price along with capital gains have been calculated from these assumptions.

Angus Cartwright Harvard Case Solution & Analysis

Introduction

Judy and John Deright wanted to make a short term investment in order to increase the future value of investment. Moreover, they wanted to diversify investment in order to minimize their risk. The primary focus of their investment is to identify the critical factors that would increase their future cash flows which are generated by these properties. The aim is to expand the activities of investment by considering four properties for the future.

The main reason of investing in real estate is to increase the diversification of investment so that risks related to investments could also be reduced. Moreover, other benefits such as freedom from inflation and tax advantages would also be included.

The subject of earning profit expectations should be higher than the industry levels. Therefore, for making rational investment, it has been consulting Angus Cartwright so that necessary investment criteria could be set for acquiring these properties. The main reason for making the desired criteria is that after a year, capital gain could be earned over investment when selling property.

Consequently, it would be important for the consultant that is Angus Cartwright to make advice in such a manner that could secure investment. Moreover, developing the criteria to make proper evaluation of all four properties when purchasing is important. The properties that are being dealt with Deright include Alison Green, 900 Stony Walk, Ivy Terrace and Flower Building. However, the results from assets valuation would be clearly showing the future value of the property from holding period to the selling time period which is after a year. The modifications which are included for Cartwright are the operating expenses that could be adjusted by decreasing the occupancy rate and reducing the margin of leasing criteria in order to achieve future cash flows.

Problem statement

The main issue that has been faced while selecting one of the four properties or all properties is the selection and use of accurate valuation criteria so that Deright would make actions to make appropriate purchases of property to be hold for a certain time period and selling it in the future whenever the value of investment would be able to earn capital gains. Hoverer, the assessment of resources includes many factors such as interest rate, tax rate and inflation rate would be fluctuated and the projected value of property could get changes at the time of making sales. Therefore, Angus Cartwright should consider this necessary information and the achievement of outcome could satisfy the demand of investors and buyers.

Analysis

Valuation of properties:

As per the following considerations, each property has been valued according to the rules and values which have been performed by Angus Cartwright. In order to demonstrate the key factors, such as space for cash flows and taxes along with their benefits including interest rate an appropriate method has been applied to calculate the results. Therefore, to crucially analyze the value of each property and to make certain assumptions regarding holding or selling any property, a concept named “Arm’s Length Transaction” has been applied in order to satisfy both buyer and seller. However, the main concern of valuations is for the investors and the buyers in order to pick suitable value option for the future earnings such as capital gains at the selling time.

Alison green:

It was identified that some factors have been modified in order to increase the value of cash flows and price of building at the time of selling. These changes include interest, gross income and the lease of amortization value. Consequently, the results generated from valuation of Alison Green shows that it would generate 76.89% of cash flows before interest and taxes. The future margin value has been calculated for 42.24% excluding the factor of IRR that is internal rate of return. Therefore, as per the valuation of Alison Green, investor is not recommended to make purchase of this property as its actual worth would be less than assumed and expected.

900 stony Walk:

According to the analysis of 900 Stony Walk, it has been identified that interest rate would be increasing at 6.5% but decreasing in the amortization period to 25 years. However, with the short time and increase in interest rate, the cash flows would be generated for about 100.35% before interest and tax. Moreover, the tax benefits would be achieved at 13.37% at the selling time. As a result, the future value of 900 Stony Walk would be better than Alison Green. Consequently, the internal rate of return would be generated at a higher rate that would allow investors to make purchases. Therefore, it would somehow be considerable as a right option for Deright to consider about the respective property with high capital gains on selling...............

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