In order to make a sound investment decision, you need to:
1)Determine Potential Gross Income (PGI)and Vacancy Allowance for the MULbased on the informationfor comparable properties(see Exhibit I)
2)Reconstruct a proper operating statement to determine the Net Operating Income(see Exhibit III)
3)Build a 10-year Pro Forma forecast using proper financial modelling standards
4)Incorporate all uncertainties into your forecast (applyingthe tools, theoriesand concepts from this unit)
Determine the maximum bid price for the MUL, considering 12% of the sale price as transaction costand taxes,and based on the NPV evaluationof the unlevered cash flows.
As a cautiously optimistic investorand considering the economic climate,instead of using the mean NPV, you arewilling to accepta 25% risk level.
What would be yourbid price forthe MUL?
Provide a critical evaluation of the uncertainties, assumptions, considerationsand options behind your calculations and decisionswith reference to the relevant theories.Include a sensitivity analysis.
