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Fina1003 Presentation

corporate finance presentation group 8
by

Simon Kwok

on 28 April 2010

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Transcript of Fina1003 Presentation

FINA1003L
Presentation Group 8 Kenny Kwok, Frederic Kwok
Kevin Yip, Simon Kwok
Royce Chan, , Jason Lau
Situation Mr. Wong wants to buy a flat in
Mongkok for investment...... His plan:
about 400 sq. ft.,
less than 10 years old,
costing $1 million
rent out the flat for $5,000 per month
required return for this project is 7%

After 5 years
sell the flat at the end of 5 years
flat’s value can grow 2% per year.


NPV and IRR of the investment What is the NPV and IRR for Mr. Wong’s
project if he can pay the $1 million in cash?
Assumptions to be made:
1. Cash flow equals the expected rental of $5,000 per month

2. Discount the cash flow using annual percentage rate for simplifying
the calculation

3. Will not return the capital until the flat sold, only pay interest to
the bank Cash inflow Timeline of cash flow Calculation:
NPV= -$1000000 + $5000*12*(1-(1/1.07)^5)/0.07 +
$1000000*1.02^5/1.07^5
NPV= $33,206.20

Let IRR=r%
0 = -$1,000,000 + $60000 x [ 1-(1/1+ r% )^5 ] / r% +
$1,000,000x (1.02)^5 / (1 + r%)^5
IRR= 7.7819%
NPV and IRR of the investment NPV and IRR of the investment What is the NPV and IRR for Mr. Wong’s
project if he pay ...
1. pays 30% of the purchase price as down payment
2. borrows the 70% from a bank at 3% per year
Timeline of cash flow Cash inflow Examples from simple research 1. Charming Garden Block 2
Size: 505 sq. fit.
Rental price: $12,000 per month Reference:

http://web.centanet.com/findproperty/Detail/Detail.aspx?id=020de65d-7773-4d30-93a7-c4f7e2e40de2&posttype=R&src=S

http://www.hkea.com.hk/pub/ListingServ?pid=H000052841

http://www.gohome.com.hk/search_result/listing.asp?listingCode=3381-5366&pageno=10
Metro Harbour View Block 2
Size: 477 sq. fit.
Rental price: $9,500 per month Bijou Apartments
Size: 363 sq. fit.
Rental Price: $9500 per month Possible expenses Purchasing the flat Renting out the flat commission for agency
stamp duty
legal cost

commission for agency
stamp duty
furnitures purchasing
renovation

End of presentation
Thank you!!! Risks might occur in
undertaking this project Cash outflow
Calculation:
NPV= -$300,000 - $39,000/(1+7%) +
$39,000/(1+7%)^2+
$39,000/(1+7%)^3 +
$39,000/(1+7%)^4 +
$443,080,80/(1+7%)^5
NPV= $148,011.73


Let IRR=r%
0= -$300,000 - $39,000/(1+r) + $39,000/(1+r)^2 +
$39,000/(1+r)^3 +
$39,000/(1+r)^4 +
$443,080,80/(1+r)^5
IRR= 17.8626% Systematric risks

Unsystematric risks

Inflation
Change of required return Delay of rent payment
Particular problem occurred
in the flat (need renovation)
Drop of flat's value (<$1,000,000) From the research,
He seems to have under-estimated the rental price.
Cash outflow
Full transcript