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  • DCF Max PP Example

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    1. The document provides a feasibility analysis for purchasing an investment property by calculating the maximum purchase price that achieves a required 10% return over 5 years based on rental income assumptions. 2. Key inputs include a weekly rent of $575, 7% annual growth, 5% vacancy rate, $7,405 annual expenses, and a 4% acquisition cost. 3. Using discounted cash flow analysis, it determines the maximum purchase price is $576,666 based on the net present value of future cash flows over 5 years.

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    1. The document provides a feasibility analysis for purchasing an investment property by calculating the maximum purchase price that achieves a required 10% return over 5 years based on rental income assumptions. 2. Key inputs include a weekly rent of $575, 7% annual growth, 5% vacancy rate, $7,405 annual expenses, and a 4% acquisition cost. 3. Using discounted cash flow analysis, it determines the maximum purchase price is $576,666 based on the net present value of future cash flows over 5 years.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    6 views1 page

    DCF Max PP Example

    Uploaded by

    fro24
    1. The document provides a feasibility analysis for purchasing an investment property by calculating the maximum purchase price that achieves a required 10% return over 5 years based on rental income assumptions. 2. Key inputs include a weekly rent of $575, 7% annual growth, 5% vacancy rate, $7,405 annual expenses, and a 4% acquisition cost. 3. Using discounted cash flow analysis, it determines the maximum purchase price is $576,666 based on the net present value of future cash flows over 5 years.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    of 1

    UDB246 Property Feasibility Analysis

    Week 2 Exercise Solution

    Variables/Assumptions How do much should I pay for this property?


    Purchase Price PP UNKNOWN 1. Set up cashflows over period/time
    Required return r 10.0% 2. Determine the Net Income for each period
    Rent $575 per week 3. Calculate the discount factor for each period
    Growth g 7.0% per annum 4. Calcuate the PV of each period
    Term n 5 years 5. Add up all the PVs
    Mgmt Fees, mtce&stat charges $7,405 per annum 6. Deduct any acquisition costs
    Vacancy, relet fees 5.0% gross income 7. Answer = Maximum price payable
    Acquisition costs 4.0% x PP
    Terminal Yield 3.5%
    Selling Costs 3.0%

    (1) 0 1 2 3 4 5 6
    Gross Income (ex vacancy etc) $29,900 $31,993 $34,233 $36,629 $39,193 $41,936
    Less Vacancy $1,495 $1,600 $1,712 $1,831 $1,960 $2,097
    Less expenses:
    Mgmt Fees, mtce&stat charges $7,405 $7,405 $7,405 $7,405 $7,405 $7,405
    (2a) Net income $21,000 $22,988 $25,116 $27,392 $29,828 $32,434
    (2b) Sale Price $926,699
    (2b) Less Selling Costs -$27,801
    (2) Net Cash Flow $928,727
    (3) Discount Factor 0.909 0.826 0.751 0.683 0.621
    (4) PV of net cashflows $576,666
    (5) Sum of PV of future cashflows
    (6) Less Acquisition cost
    (7) Maximum Purchase Price
    This is the maximum purchase price you can pay for this property to achieve your desired return, based on the assumptions given.

    03/06/2024

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