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REST0001 - Week 5 Sensitivity Analysis Practice Questions - Solution

The document analyzes the net present value (NPV) of a commercial real estate investment under different scenarios by changing variables such as equity, annual rental income, capitalization rate, and discount rate. It calculates the NPV for the base case and then adjusts one variable at a time, recalculating the NPV each time to determine the impact of that single variable.

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Vaishnavi Hallikar
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142 views19 pages

REST0001 - Week 5 Sensitivity Analysis Practice Questions - Solution

The document analyzes the net present value (NPV) of a commercial real estate investment under different scenarios by changing variables such as equity, annual rental income, capitalization rate, and discount rate. It calculates the NPV for the base case and then adjusts one variable at a time, recalculating the NPV each time to determine the impact of that single variable.

Uploaded by

Vaishnavi Hallikar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Inputs Year Equity

Equity -$ 1,500,000 0 -$ 1,500,000


ATER $ 2,100,000 1
Year 1 rent (ATCF) $ 150,000 2
Rental growth (yearly) 3% 3
Discount rate 8% 4
Holding Period 10 years 5
6
7
8
9
10
ATCF ATER Cashflow PV @ 8% Present Value
-$ 1,500,000 1.0000 -$ 1,500,000
$ 150,000 $ 150,000 0.9259 $ 138,889
$ 154,500 $ 154,500 0.8573 $ 132,459
$ 159,135 $ 159,135 0.7938 $ 126,326
$ 163,909 $ 163,909 0.7350 $ 120,478
$ 168,826 $ 168,826 0.6806 $ 114,900
$ 173,891 $ 173,891 0.6302 $ 109,581
$ 179,108 $ 179,108 0.5835 $ 104,508
$ 184,481 $ 184,481 0.5403 $ 99,669
$ 190,016 $ 190,016 0.5002 $ 95,055
$ 195,716 $ 2,100,000 $ 2,295,716 0.4632 $ 1,063,361
NPV $ 605,226

NPV by Formula $605,226


Inputs
Equity
The ATER is reduced by 50% and the Equity Equity Growth
is increased by 30% concurrently. Equity
ATER
ATER Reduction
ATER
Year 1 rent (ATCF)
Rental growth (yearly)
Discount rate
Holding Period
Year Equity ATCF ATER
-$ 1,500,000 0 -$ 1,950,000
30% 1 $ 150,000
-$ 1,950,000 2 $ 154,500
$ 2,100,000 3 $ 159,135
50% 4 $ 163,909
$ 1,050,000 5 $ 168,826
$ 150,000 6 $ 173,891
3% 7 $ 179,108
8% 8 $ 184,481
10 years 9 $ 190,016
10 $ 195,716 $ 1,050,000
Cashflow PV @ 8% Present Value
-$ 1,950,000 1.0000 -$ 1,950,000
$ 150,000 0.9259 $ 138,889
$ 154,500 0.8573 $ 132,459
$ 159,135 0.7938 $ 126,326
$ 163,909 0.7350 $ 120,478
$ 168,826 0.6806 $ 114,900
$ 173,891 0.6302 $ 109,581
$ 179,108 0.5835 $ 104,508
$ 184,481 0.5403 $ 99,669
$ 190,016 0.5002 $ 95,055
$ 1,245,716 0.4632 $ 577,008
NPV -$ 331,127

NPV by Formula -$331,127


Inputs
Equity
ATER
The rate of return (discount rate) is
Year 1 rent (ATCF)
reduced to 6%.
Rental growth (yearly)
Discount rate
Holding Period
Year Equity ATCF ATER
-$ 1,500,000 0 -$ 1,500,000
$ 2,100,000 1 $ 150,000
$ 150,000 2 $ 154,500
3% 3 $ 159,135
6% 4 $ 163,909
10 years 5 $ 168,826
6 $ 173,891
7 $ 179,108
8 $ 184,481
9 $ 190,016
10 $ 195,716 $ 2,100,000
Cashflow PV @ 6% Present Value
-$ 1,500,000 1.0000 -$ 1,500,000
$ 150,000 0.9434 $ 141,509
$ 154,500 0.8900 $ 137,504
$ 159,135 0.8396 $ 133,613
$ 163,909 0.7921 $ 129,831
$ 168,826 0.7473 $ 126,157
$ 173,891 0.7050 $ 122,586
$ 179,108 0.6651 $ 119,117
$ 184,481 0.6274 $ 115,746
$ 190,016 0.5919 $ 112,470
$ 2,295,716 0.5584 $ 1,281,916
NPV $ 920,450

NPV by Formula $920,450


Inputs
Equity
ATER
The ATCF for each year decreases by
Year 1 rent (ATCF)
10%.
Rental growth (yearly)
Discount rate
Holding Period
ATCF yaerly decrease
Year Equity ATCF ATER
-$ 1,500,000 0 -$ 1,500,000
$ 2,100,000 1 $ 135,000
$ 150,000 2 $ 139,050
3% 3 $ 143,222
8% 4 $ 147,518
10 years 5 $ 151,944
10% 6 $ 156,502
7 $ 161,197
8 $ 166,033
9 $ 171,014
10 $ 176,144 $ 2,100,000
Cashflow PV @ 8% Present Value
1.0000 -$ 1,500,000
$ 135,000 0.9259 $ 125,000
$ 139,050 0.8573 $ 119,213
$ 143,222 0.7938 $ 113,694
$ 147,518 0.7350 $ 108,430
$ 151,944 0.6806 $ 103,410
$ 156,502 0.6302 $ 98,623
$ 161,197 0.5835 $ 94,057
$ 166,033 0.5403 $ 89,702
$ 171,014 0.5002 $ 85,550
$ 2,276,144 0.4632 $ 1,054,295
NPV $ 491,974

NPV by Formula $491,974


Year
Inputs 0
Equity -$ 15,500,000 1
ATER $ 18,550,000 2
Year 1 rent (ATCF) $ 950,500 3
Rental growth (yearly) 2.50% 4
Discount rate 6% 5
Holding Period 10 years 6
7
8
9
10

NPV1
Inputs Year
Discount rate 4% 0
ATER <15% $ 15,767,500 1
2
3
4
5
6
7
8
9
10

NPV 2
Year
Inputs 0
Discount rate 6% 1
ATER <15% $ 15,767,500 2
3
4
5
6
7
8
9
10

NPV 3
Year
Inputs 0
Discount rate 8% 1
ATER <15% $ 15,767,500 2
3
4
5
6
7
8
9
10
Expected Situation
Equity Cash Flow ATER Total Cash Flow
-$ 15,500,000 -$ 15,500,000
$ 950,500 $ 950,500
$ 974,262 $ 974,262
$ 998,619 $ 998,619
$ 1,023,585 $ 1,023,585
$ 1,049,174 $ 1,049,174
$ 1,075,404 $ 1,075,404
$ 1,102,289 $ 1,102,289
$ 1,129,846 $ 1,129,846
$ 1,158,092 $ 1,158,092
$ 1,187,044 $ 18,550,000 $ 19,737,044
NPV $ 2,603,643

Equity Cash Flow ATER Total Cash Flow


-$ 15,500,000 $ - -$ 15,500,000
$ - $ 950,500 $ 950,500
$ - $ 974,262 $ 974,262
$ - $ 998,619 $ 998,619
$ - $ 1,023,585 $ 1,023,585
$ - $ 1,049,174 $ 1,049,174
$ - $ 1,075,404 $ 1,075,404
$ - $ 1,102,289 $ 1,102,289
$ - $ 1,129,846 $ 1,129,846
$ - $ 1,158,092 $ 1,158,092
$ - $ 1,187,044 $ 15,767,500 $ 16,954,544
NPV $ 3,720,446

Equity Cash Flow ATER Total Cash Flow


-$ 15,500,000 -$ 15,500,000
$ - $ 950,500 $ 950,500
$ - $ 974,262 $ 974,262
$ - $ 998,619 $ 998,619
$ - $ 1,023,585 $ 1,023,585
$ - $ 1,049,174 $ 1,049,174
$ - $ 1,075,404 $ 1,075,404
$ - $ 1,102,289 $ 1,102,289
$ - $ 1,129,846 $ 1,129,846
$ - $ 1,158,092 $ 1,158,092
$ - $ 1,187,044 $ 15,767,500 $ 16,954,544
NPV $ 1,049,910

Equity Cash Flow ATER Total Cash Flow


-$ 15,500,000 -$ 15,500,000
$ 950,500 $ 950,500
$ 974,262 $ 974,262
$ 998,619 $ 998,619
$ 1,023,585 $ 1,023,585
$ 1,049,174 $ 1,049,174
$ 1,075,404 $ 1,075,404
$ 1,102,289 $ 1,102,289
$ 1,129,846 $ 1,129,846
$ 1,158,092 $ 1,158,092
$ 1,187,044 $ 15,767,500 $ 16,954,544
NPV -$ 1,161,632
Variable 1: Investment Rate
4%
Variable 2: After Task Reduced by 15% $ 3,720,446
Equity Reversion (ATER) Increased by 10% $ 6,853,375

Inputs
Discount rate 4%
ATER >10% $ 20,405,000

Inputs
Discount rate 6%
ATER >10% $ 20,405,000
Inputs
Discount rate 8%
ATER >10% $ 20,405,000
iable 1: Investment Rate of Return
6% 8%
$ 1,049,910 -$ 1,161,632
$ 3,639,466 $ 986,428

NPV4
Year Equity Cash Flow ATER Total Cash Flow
0 -$ 15,500,000 -$ 15,500,000
1 $ 950,500 $ 950,500
2 $ 974,262 $ 974,262
3 $ 998,619 $ 998,619
4 $ 1,023,585 $ 1,023,585
5 $ 1,049,174 $ 1,049,174
6 $ 1,075,404 $ 1,075,404
7 $ 1,102,289 $ 1,102,289
8 $ 1,129,846 $ 1,129,846
9 $ 1,158,092 $ 1,158,092
10 $ 1,187,044 $ 20,405,000 $ 21,592,044
NPV $ 6,853,375

NPV 5
Year Equity Cash Flow ATER Total Cash Flow
0 -$ 15,500,000 -$ 15,500,000
1 0 $ 950,500 $ 950,500
2 0 $ 974,262 $ 974,262
3 0 $ 998,619 $ 998,619
4 0 $ 1,023,585 $ 1,023,585
5 0 $ 1,049,174 $ 1,049,174
6 0 $ 1,075,404 $ 1,075,404
7 0 $ 1,102,289 $ 1,102,289
8 0 $ 1,129,846 $ 1,129,846
9 0 $ 1,158,092 $ 1,158,092
10 0 $ 1,187,044 $ 20,405,000 $ 21,592,044
NPV $ 3,639,466

NPV 6
Year Equity Cash Flow ATER Total Cash Flow
0 -$ 15,500,000 -$ 15,500,000
1 0 $ 950,500 $ 950,500
2 0 $ 974,262 $ 974,262
3 0 $ 998,619 $ 998,619
4 0 $ 1,023,585 $ 1,023,585
5 0 $ 1,049,174 $ 1,049,174
6 0 $ 1,075,404 $ 1,075,404
7 0 $ 1,102,289 $ 1,102,289
8 0 $ 1,129,846 $ 1,129,846
9 0 $ 1,158,092 $ 1,158,092
10 0 $ 1,187,044 $ 20,405,000 $ 21,592,044
NPV $ 986,428

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