Concordia Real Estate Inc Case Study: Analysis of the Investment Opportunity
Management Summary Project A
This report will examine the commercial property that Concordia Real Estate Inc is considering as a potential investment opportunity. The project is being evaluated over an investment horizon of twenty years with total costs estimated to be approximately $20.06M. If accepted, Concordia Real Estate Inc plans to finance the project entirely with cash. The investment’s profitability will be analyzed using several key financial indicators. Based on the results of the analysis a recommendation will be made as to whether or not the project should be accepted. The key results of the analysis are listed below:
Financial Indicators
NPV $7,795,695
IRR 12.822397%
Payback Period 8.175779
Discounted Payback Period 14.275897
Profitability Index 1.388673
Discount Rate 8.891528%
The results of the analysis lend favourably towards accepting the investment project. First it is important to note that based on the after tax cost of borrowing and a risk premium of 3.75%, a discount rate of 8.89% was deemed appropriate for the project. The majority of the investment indicators used to value the project use discounted cash flows to determine the investment’s profitability. This technique allows for comparison amongst different investment opportunities available, as it provides the total return that is expected to be achieved over the project’s horizon in current dollar terms.
The resulting NPV indicates that the project should be accepted and the investor should expect a return on equity of 38.87%. The NPV provides the investor with an expectation of what all future cash inflows will be worth in today’s dollars. The profitability index is closely related to the NPV. It evaluates the project’s feasibility based on future cash flows compared to initial costs. In general, a project is deemed a valid investment if this ratio is over 1. For this investment opportunity the profitability index indicates that it should be accepted.
The
This report will examine the commercial property that Concordia Real Estate Inc is considering as a potential investment opportunity. The project is being evaluated over an investment horizon of twenty years with total costs estimated to be approximately $20.06M. If accepted, Concordia Real Estate Inc plans to finance the project entirely with cash. The investment’s profitability will be analyzed using several key financial indicators. Based on the results of the analysis a recommendation will be made as to whether or not the project should be accepted. The key results of the analysis are listed below:
Financial Indicators
NPV $7,795,695
IRR 12.822397%
Payback Period 8.175779
Discounted Payback Period 14.275897
Profitability Index 1.388673
Discount Rate 8.891528%
The results of the analysis lend favourably towards accepting the investment project. First it is important to note that based on the after tax cost of borrowing and a risk premium of 3.75%, a discount rate of 8.89% was deemed appropriate for the project. The majority of the investment indicators used to value the project use discounted cash flows to determine the investment’s profitability. This technique allows for comparison amongst different investment opportunities available, as it provides the total return that is expected to be achieved over the project’s horizon in current dollar terms.
The resulting NPV indicates that the project should be accepted and the investor should expect a return on equity of 38.87%. The NPV provides the investor with an expectation of what all future cash inflows will be worth in today’s dollars. The profitability index is closely related to the NPV. It evaluates the project’s feasibility based on future cash flows compared to initial costs. In general, a project is deemed a valid investment if this ratio is over 1. For this investment opportunity the profitability index indicates that it should be accepted.
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