Rosetree Mortgage Opportunity Fund Harvard Case Solution & Analysis

InTroDucTion
Every company needs to grasp some good opportunities so that itcan grow and compete effectively in the market. To ensure the growth some companies use acquisition strategy, some expand their business through the diversification and some invest the excess funds into the projects.
Rosetree Capital Management is an investment company which has a history to purchase depressed loan. In 2008 during the world economic recession the company wanted to evaluate an opportunity belongs with the purchase of residential mortgage loan. As the economywasingreatdepression, therefore, they wanted to evaluate it under four different scenarios. In this report, our team helps the company in evaluating this loan.
To evaluate the loan we analyze it on the basis of qualitative and quantitative analysis in thequalitative analysis we describe the market condition and the main attributes of the loan. While in thequalitative analysis we evaluate the loan on the basis of NPV and IRR.
After that, we provide some recommendation regarding the bid price of the loanand the factors due to which the loan owners may agree to sell the loan. In last we provide some exhibits which show the overall working of WACC, NPV, IRR, and recommendation.

Background
Rosetree Capital Management is an investment vehicle whose main operation is to acquire troubled residential mortgage from the motivated sellers such as banks and others. The company has a history to acquire distressed capital instruments at the discount and then rearrange them in a manner that converts it into profits. The company has a good history of this process.
In December 2008 when the economic condition of US was in great depressionthe company is evaluating the purchase of a portfolio. The portfolio which is under the consideration has 175 loansoutstanding at approximately $65million. Hence each loan has an average value of approximately $0.37million.
The methods which the company intended to use to evaluate this investment are NPV and IRR. The estimated inflows of the project are interest, principle and liquidation while the only expense is servicing expense. Along with this the company also set a targeted IRR which will be used to compare with the IRR of the loan.
As the economic condition of the country was in great depression which drastically effects on the mortgage loan. Therefore, Rosetree Capital Management Company intends to evaluate this investment under four scenarios slow economic growth, moderate recession, severe recession and severe recession with the loan renegotiation option.


Qualitative Analysis
Market Condition:
In 2008 the economic condition of United States was in great depression. Due to this depression, the default rates on thesubprime residential mortgage have been increased. And due to this default rates subprime startedto produce losses.Moreover, the holders of the subprime such as investment banks, hedge funds and othersreported high gearing and losseswhich affected adversely over their gearing, therefore, they intend to liquidate some of its assets such as equities.
Moreover, the future market predicts that the value of thesingle-family home will decrease by 40% in 2009 however afterthat it will become stable........

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