The last investment opportunity with the Strong land was in the residential construction in Wuxi, China. The construction of residential involved 2 phases in which CADIMhad to invest 50% amount in the first phase and had the option if it would further invest in the second phase. The problem in the investment was that it would not be able to withdraw any profits until the project had ended and if it decides for not going through the second project with Strong land, then it would require in finding a new potential partner for providing investment opportunities.

Q.3: Hurdle Rate

The qualitative aspect of the investment portfolio suggests that company demands a certain rate of return on its investment for taking the available risk on its investment. There are two types of rate of returns which need to be taken into consideration for earning the minimum level of remuneration. Generally, the company’s net cash flows are discounted by using either Hurdle rate of IRR. The qualitative aspect of the hurdle rate suggests that if the Hurdle rate is below IRR, company’s NPV will be positive. However, if it is above IRR, then the NPV will be lower. Hence, there lies inverse relationship between IRR and Hurdle rate.

The minimum level of net remuneration or net return required by the company is 14% for its investments in real estate. The company is of the opinion to increase this return threshold by analyzing the risk appetite of all the investments. This varies from region to region such ascompany has forecasted a hurdle rate of around 18% for the novel investments in the US which is lower than the return on investments in China and India because they are riskier so, the threshold has been set to around 20% or more. But, this does not case all the time because it varies from time to time and on the basis of factors affecting the securities’ risk. There might be few projects in India and China which contains less risk appetite than investment in US securities.

Cadim-China And India Real Estate Deals Harvard Case Solution & Analysis

Q4:ATLANTIS Deal

Expected NPV and IRR of Atlantis Deal

Optimistic NPV and IRR of Atlantis Deal

Pessimistic NPV and IRR of Atlantis Deal

FOEREAU DEAL

Expected NPV and IRR of FOEREAU Deal

Optimistic NPV and IRR of FOEREAU Deal

Pessimistic NPV and IRR of FOEREAU Deal

STRONGLAND Deal

Expected NPV and IRR of STRONGLAND Deal

Optimistic NPV and IRR of STRONGLAND Deal

Pessimistic NPV and IRR of STRONGLAND Deal

Q5: Decision with Recommendations:

After analyzing the results of NPV and IRR for all three partners using expected, optimistic and pessimistic approach, it can be recommended that company should choose theinvestment with a partner which provides highest NPV along with theminimum required rate of return requirement of 14%. The NPV of Atlantic Deal shows thehighest result of $220.76 so this should be accepted.

Moreover, it has the internal rate of return which is up to the acceptable level of at least 14% so this will be having the less risk by using the pessimistic approach. However, the Optimistic approach is showing higher IRR requirement for its inflows to be equal to its outflows. So, I would recommend the CADIM to invest in Atlantic by using Pessimistic Approach for getting highest return in terms of NPV and minimum required alevel of remuneration.

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