The Net Present Value And Internal Rate Return

The investment:

The investor can raise 60% of the value of the investment, the purchase price is 25,990,000 plus the duty fee equal to 1429450, the total sales price can therefore be considered to be 27,419,450, 257800 will be amortized for 5 years and therefore the investor will pay 51560

Each year for 5 years, the amount required to purchase will therefore be 27,161,650. Given this amount we can determine how much the investor will pay and how much will be obtained as loan, the investor will raise 60% and the value is16, 296,990 while loan value is10, 864,660.

The following table shows the expected rent value for the 7 year period assuming that the supermarket is given a 6 month free rent and the other tenants are given a 30% off for trhe4 first year, we also assume that for the seven years we have zero vacancies:

Tenant

yr 1

yr 2

yr 3

yr 4

1/23

The net present value and internal rate return

yr 5

Yr 6

Yr 7

Supermarket

261080

\$522,160

\$522,160

\$522,160

\$522,160

\$522,160

\$522,160

2/23

The net present value and internal rate return

Clothing*

381024

\$544,320

\$544,320

\$544,320

\$544,320

\$544,320

\$544,320

Food*

411432

\$587,760

3/23

The net present value and internal rate return

\$587,760

\$587,760

\$587,760

\$587,760

\$587,760

News agency*

147420

\$210,600

\$210,600

\$210,600

\$210,600

\$210,600

4/23

The net present value and internal rate return

\$210,600

Chemist*

185220

\$264,600

\$264,600

\$264,600

\$264,600

\$264,600

\$264,600

Other specialty retailers

779520

5/23

The net present value and internal rate return

\$1,113,600

\$1,113,600

\$1,113,600

\$1,113,600

\$1,113,600

\$1,113,600

total

2165696

\$3,243,040

\$3,243,040

\$3,243,040

6/23

The net present value and internal rate return

\$3,243,040

\$3,243,040

\$3,243,040

The table below summarizes the operating costs of the investment where the cost is adjusted at 3% inflation rate of the previous year for those costs not based on rent:

yr 1

yr 2

yr 3

yr 4

7/23

The net present value and internal rate return

yr 5

Yr 6

Yr 7

Management cost (5%)

108284.8

162152

162152

162152

162152

162152

162152

8/23

The net present value and internal rate return

Maintenance (4%)

86627.84

129721.6

129721.6

129721.6

129721.6

129721.6

129721.6

insurance

188450

194103.5

9/23

The net present value and internal rate return

199926.605

205924.4032

212102.1352

218465.199

225019.155

utilities

7850

8085.5

8328.065

8577.90695

8835.244159

9100.30148

10/23

The net present value and internal rate return

9373.31053

council and water rates

44500

45835

47210.05

48626.3515

50085.14205

51587.6963

53135.3272

total

435712.6

11/23

The net present value and internal rate return

539897.6

547338.32

555002.2616

562896.1214

571026.797

579401.393

12/23

The net present value and internal rate return

Depreciation for the fixtures and capital is summarized in the following table for the 7 years:

depreciation

13/23

The net present value and internal rate return

value

yr 1

yr 2

yr 3

yr 4

yr 5

Yr 6

14/23

The net present value and internal rate return

Yr 7

Capital (2.5%)

17,413,300

435332.5

435332.5

435332.5

435332.5

435332.5

435332.5

435332.5

Fittings and fixtures (9%)

15/23

The net present value and internal rate return

3,638,600

327474

298001.3

271181.2194

246774.91

224565.17

204354.3

185962.42

The total rent for the seven years without incentives is summarized by the diagram below:

16/23

The net present value and internal rate return

Tenant

yr 1

yr 2

yr 3

yr 4

yr 5

Yr 6

Yr 7

Supermarket

\$522,160

\$522,160

17/23

The net present value and internal rate return

\$522,160

\$522,160

\$522,160

\$522,160

\$522,160

Clothing*

\$544,320

\$544,320

\$544,320

\$544,320

\$544,320

\$544,320

18/23

The net present value and internal rate return

\$544,320

Food*

\$587,760

\$587,760

\$587,760

\$587,760

\$587,760

\$587,760

\$587,760

News agency*

\$210,600

19/23

The net present value and internal rate return

\$210,600

\$210,600

\$210,600

\$210,600

\$210,600

\$210,600

Chemist*

\$264,600

\$264,600

\$264,600

\$264,600

20/23

The net present value and internal rate return

\$264,600

\$264,600

\$264,600

Other specialty retailers

\$1,113,600

\$1,113,600

\$1,113,600

\$1,113,600

\$1,113,600

\$1,113,600

\$1,113,600

21/23

The net present value and internal rate return

total

\$3,243,040

\$3,243,040

\$3,243,040

\$3,243,040

\$3,243,040

\$3,243,040

\$3,243,040

The net present value and internal rate of return:

22/23

The net present value and internal rate return

NPV = ∑ (Ct/ (1+r) t)

Where C is the cash flow, r is the discount rate and t is time.

When the NPV is greater than zero we should accept the investment, if the NPV is less than zero we reject the investment but if it is equal to zero we are indifferent on whether to accept the investment or reject it.

We calculate the net present value as follows;

23/23