Angus Cartwright III Harvard Case Solution & Analysis

Angus Cartwright III Harvard Case Studies


Angus Cartwright, III, is the investment advisor based in Virginia, who takes conservative approaches to risk. Angus Cartwright, III, was engaged in dealing with the DeRight Family for several years as well as had located four properties that would be an appropriate investment for his clients. Judy DeRight was the sole stockholder as well as the president of the small-sized chemical firm that had strong financial standing. She had received a number of offers to sell her firm in exchange for the stock of the public company. He was concerned about diversifying the business due to the increased benefits of real estate such as protection from inflation, benefits of diversification, and some tax advantages. Each DeRight is seeking to purchase the property that must be large enough to attract professional real estate management firm interest and wanted a minimum leverage return of 12% after-tax on their investment.

The clients include Alison Green, 900 Stony Walk, Ivy Terrace, and The Fowler Building. He is concerned about evaluating the reasonableness of the rent levels, purchase price, operating expenses, and amenities provided in the properties. The first was Alison Green, which had 100 apartments in Montgomery, Maryland and the second were 900 Stony Walk, a commercial building that could be rented by small service companies. The third and fourth properties, the Ivy Terrace and the Fowler Building were both under construction and located in Arlington.

Problems statement

John DeRight and Judy are looking forward to diversifying their portfolio of investment, due to which they have retained Cartwright, Jr. in order to identify and evaluate the prospective real estate acquisitions. Mr. Cartwright has various properties that he feels merit an in-depth financial analysis. To come up with an accurate and reliable financial analysis of each property, Cartwright must need logical assumptions as well as evaluates the attributes by using various techniques to make the right and valuable decisions.

Analysis and evaluation of proposed properties

The valuation and analysis of the property would determine which property is preferable to hold for earning high capital gains and profits. The valuation of each property would help the investors in estimating the property to be purchased for investment. The results of the analysis depend on various key factors, such as utilization, the tax rate, the interest rate, and the inflation rate set by Cartwright.

An increase in net operating income and capital reserves would be of 3% annually for Ivy, Stony Walk, Alison, and 5% for Fowler. A capital gain tax rate of 28%, Ordinary tax rate of 39.6% would apply. Clients would supply necessary equity beyond mortgages and could use any tax losses against other income and tax laws would not change. Expected cash flows from operations increased 3% per year except Fowler Building that projected to increase 5% per year. After discussing it with De Rights, Cartwright suggests that they would hold the investments for 10 years. Alison green will make a 20.4% profitability index and stone, ivy, Flower building produce 17.27%, 11.64%, and 13.5% PI. After calculation it is realized that he can generate maximum profit by other options, due to this PI is considered as the most important option.

Both cousins have low money and each option will generate a return but it is not possible for them to invest in all the options because of the limited funds. So due to this it is best to find the profitability index of each option so then after analyzing the ratio it would become easy to invest in particular options. Profitability index includes the time value of money concept, PI greater than 1 tells PV of future cash flows from an investment is higher than the investment amount, shows that it generates profit. And PI less than 1 shows loss from the investment (What is the Profitability Index?).

Factors Affecting the Financial Return

There are many factors that exists that may be increase or decrease the rate of the investment, some are written below (Pettinger, 2019).

1.Interest Rate

Investment is strongly influenced by interest rates. High-interest rates increase their value. If there are high-interest rates a better rate of return from keeping money in the bank. Higher interest rates make investment has a higher opportunity cost because you lose out on the interest payments.

2.Economic Growth

People investing in achieving future demand. If the economy will improve so than investments in mutual funds or in all sector also become increase, economic growth directly related to investment.


Inflation rates have an influence on investment. High and variable inflation makes more uncertainty in society. Countries having a low and stable inflation rate often experienced higher rates of investment.

4.Availability of finance

Saving is also an important factor that makes changes in the amount of amount in the country. If resources of saving is increase then automatically the rate of investment will become increase. If there are seen low options of saving in the economy then the investment rate will also go to decline.


If wages increase then the productivity of the organization will also become increasingly so then the company will generate more returns and it is the reason for the increment in investment in the economy. Wages also increase the savings of the employees so then they’ll also want to invest in the real estate or in other options of investment. So overall wages are also directly related to the investment rate.

After a look at the above mention factors, we analyze that the value of the property would reflect against the tax and interest obligations. By the current results, it is analyzed that the very best factor to consider for more returns is the interest rate. Also, the other factors also give an impact on the returns but the very important factor is the interest rate.....

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