A very wealthy client contacts you to discuss purchasing a potential investment property. He has already prepared
Question:
A very wealthy client contacts you to discuss purchasing a potential investment property. He has already prepared a cash flow model and has provided it to you for review. The property is stabilized, mixed use building with residential and commercial tenants. The project is located in a very stable area with a solid list of tenants. Though the project was built within the last 5 years, there are some signs of deferred maintenance and a need for $100,000 in capital expenditures right away. Commercial leasing commissions are 6.00% and begin in Year 2. Leasing commissions are calculated based on the prior year’s rent.
Your client intends on purchasing the property for $70,000,000 all cash and will sell it in Year 5. His Discount Rate is 8.00%. He believes the project will generate a NPV of $15,412,074 and an IRR of 13.60%.
THIS IS ALL INFO PROVIDED
1. After reviewing the model, what concerns (if any) do you have?
2. After making any necessary changes to the model, explain if your client should invest or not.
3. Your client increases his bid to $90,000,000. Should he invest? Why or why not?
Auditing and Assurance Services An Applied Approach
ISBN: 978-0073404004
1st edition
Authors: Iris Stuart