© JR DeLisle, Ph.D. Introduction to Discounted Cash Flow Analysis by James R. DeLisle, Ph.D. March 18, 2014.

Slides:



Advertisements
Similar presentations
Financial Leverage and Financing Alternatives
Advertisements

Fundamentals of Real Estate Lecture 5 Spring, 2003 Copyright © Joseph A. Petry
Chapter 8 Valuation Using the Income Approach
The Student Handbook to T HE A PPRAISAL OF R EAL E STATE 1 Chapter 20 The Income Capitalization Approach.
© JR DeLisle, Ph.D. Discounted Cash Flow: Ratio Analysis by James R. DeLisle, Ph.D. March 20, 2014.
Chapter 19: Investment value: NPV and IRR. Outline DCF framework Discounting NOI.
Credit Score  650 or Greater  Debt to Income Ratio  45% or Less Net Worth  Is it Liquid  Are Assets Inflated.
INCOME CAPITALIZATION: RATES AND TECHNIQUES Chapter 14.
Chapter 18 Investment Decisions: Ratios REAL ESTATE FIN 331.
INVESTMENT DECISION MAKING LEARNING OBJECTIVES Identify the basic types and characteristics of investment properties. Forecast annual cash flows, net of.
CHAPTER TWELVE FINANCIAL LEVERAGE AND FINANCING ALTERNATIVES.
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Chapter 14 Cash Flow Analysis.
Selected Tax Issues for Investment Property Owners
2006 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash:
Economics. Appraisal of Historic Property Appraisal Methods: Sales Comparison Approach Income Approach Cost Approach.
AGEC 489/689 Spring 2009 Overview of Financial Statements Slide Show #2.
Capital Budgeting Methods AGEC Spring 2010.
McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved CHAPTER11CHAPTER11 CHAPTER11CHAPTER11 Investment Analysis and Taxation of Income.
Accounting Fundamentals Accounting Fundamentals Structure of Financial Statements Agribusiness Finance LESE 306 Fall 2009.
Managerial Accounting Structure of Financial Statements.
MODULE 10 Basic Premises w Risk/Return analysis is critical to establish project feasibility w Financial and ownership structures affect participants’
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Real Estate QUIZMASTER DefinitionsAnalyticalNumericalMiscellaneousPotpourri.
AGEC 432 – Finance Spring 2007 Structure of Financial Statements.
Financial Leverage and Financing Alternatives
Real Estate Valuation. Real Estate Valuation: Market Comparison Approach.
AGEC 489/689 Spring 2009 Detailed View of Financial Statement Linkages Slide Show #3.
Accounting Fundamentals Accounting Fundamentals Structure of Financial Statements.
Chapter 17 Investing in Income-Producing Real Estate Advantages of Real Estate Investment –Attractions of real estate as an investment Cash flow from operations.
Investment Analysis and Taxation of Income Properties
© OnCourse Learning Chapter 27 : Investing in Real Estate.
Valuation of Income Properties: Appraisal and the Market for Capital
Real Estate Finance © JR DeLisle, Ph. D. Lecture 1: Introduction to Real Estate Finance by James R. DeLisle, Ph.D. January 5, 2010.
VALUATION BY INCOME CAPITALIZATION LEARNING OBJECTIVES Explain the difference between appraisal and investment analysis. Estimate the NOI in a reconstructed.
BU Finance & Investment Club Joseph McNiff & Xun Yao Chen Spring 2013 Introduction to Valuation.
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved McGraw-Hill/Irwin Slide 1 CHAPTER TWELVE FINANCIAL LEVERAGE AND FINANCING ALTERNATIVES.
Ch 19 Analyzing Income Producing Properties. 2 Outline  I. Advantages of Real Estate Investment  II. Disadvantages of Real Estate Investment  III.
Chapter 11: Investment Analysis and Taxation of Income Properties McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
The Real Estate Income Statement. The value of any investment is simply the present value of its expected cash flows, using a discount rate that reflects.
Chapter 7: Making capital investment decisions Corporate Finance Ross, Westerfield, and Jaffe.
The Financial Statements Presentations for Chapter 2 by Glenn Owen.
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved McGraw-Hill/Irwin Slide 1 CHAPTER TWELVE FINANCIAL LEVERAGE AND FINANCING ALTERNATIVES.
Real Estate Investment Chapter 14 Computer-Aided Analysis © 2011 Cengage Learning.
Fundamentals of Real Estate Lecture 4 Spring, 2002 Copyright © Joseph A. Petry
Cash Flow Budget What is it?What is it? –It is a summary of the cash inflows and outflows over a given period of time. –It is an important forward planning.
Analyzing Income-Producing Properties Chapter 16.
Reveals your overall net worth at the moment by illustrating the difference between what you owe and own.
© 2010 by Cengage Learning Chapter 27/ Chapter 25 ________________ Investing in Real Estate.
©2011 Cengage Learning. Chapter 16 ©2011 Cengage Learning SUMMARY OF REAL ESTATE INVESTMENT PRINCIPLES.
Income Tax Considerations Converting to after tax cash flows.
Making an investment decision. Value  Investment value: The value determined in view of investment objectives, goals and constraints.  Market value:
Real Estate Finance © JR DeLisle, Ph. D. Lecture 16 (b): Portfolio Project Examples by James R. DeLisle, Ph.D. March 10, 2010.
Fundamentals of Real Estate Lecture 8 Spring, 2003 Copyright © Joseph A. Petry
Income Capitalization: Rates and Techniques Basic Real Estate Appraisal: Principles & Procedures – 9 th Edition © 2015 OnCourse Learning Chapter 14.
(Crash-Course in understanding the Allen Weiss Excel Pro Forma Model) J. Gunderson Dec12.
Property Valuation Dr. Arthur C. Nelson, FAICP February 19, 2007.
1 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 3 INVESTMENT DECISIONS Forecast cash flows from operations.
1 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 13 VALUATION MODELS IN THE INCOME APPROACH Discounted.
Chapter 11 Traditional Investment Criteria 4 Rules of Thumb Criteria –General Characteristics –Payback Period Methods Gross Income Multiplier Net Income.
Chapter 8 Valuation Using the Income Approach
Phase 2 Exam Chapters Fall 2015
Economics.
Chapter 8 Valuation Using the Income Approach
Phase 2 Exam Chapters Fall 2017
Valuation Using the Income Approach
Lecture 5: Front-end Mortgages
14 Direct and Yield Capitalization
Key Financial Concept Terms I
Chapter 27/ Chapter 25 ________________ Investing in Real Estate
© OnCourse Learning.
Financial Markets – Fall, 2019 – Oct 17, 2019
Presentation transcript:

© JR DeLisle, Ph.D. Introduction to Discounted Cash Flow Analysis by James R. DeLisle, Ph.D. March 18, 2014

© JR DeLisle, Ph.D. Lecture Preview The Value Proposition Frontdoor/Backdoor Models DCF Prelude DCF: A Visual Overview One Word: GiNiTiBtAtNR Basic Inputs Introduction to Discounted Cash Flow Schedule 1: Pro Forma Cash Flow Schedules II-III: Depreciation and Loan Amortization Schedules IV-V: Capital Gain Taxes and Net Reversion Schedules VI: Financial Ratios DCF Schedules

DCF PRELUDE: FRONTDOOR/BACKDOOR

© JR DeLisle, Ph.D. The Value Proposition: Value => Cost? Land & Hard Costs Unknown Fees Known Soft Costs & Fee Costs TRCm Value = Income Rate $’s Cost = Create Value Value ?? TRCm = Total Replacement Cost market

© JR DeLisle, Ph.D. FD/BD Value Proposition: Cost Value ? Value * Rate = Income Value * Rate Income Frontdoor Value * Rate => Income Value <= Income Rate Backdoor User

© JR DeLisle, Ph.D. Frontdoor Model: Sequence Land Hard & Soft Costs TRCm NIr * Wcc / NIR GIr NIR = 1 – (Er + Ptx + Vr)

© JR DeLisle, Ph.D. Backdoor Model: Reverse Engineered Land Hard & Soft Costs TRCj NIm / Wcc / NIR GIm NIR = 1 – (Er + Ptx + Vr)

© JR DeLisle, Ph.D. Backdoor to Unleveraged DCF Analysis Land Hard & Soft Costs TRCm NIm / Wcc * NIR GIm Market

Frontdoor/Backdoor vs. DCF Frontdoor/Backdoor Annuitized Leveraged/Unleveraged Constant Dollars – Before Tax – Before Sale Discounted Cash Flow Non-annuitized Leveraged/Unleveraged Present Value (TVM) – After-tax – After Sale

DCF MODELS: A VISUAL PERSPECTIVE

© JR DeLisle, Ph.D. Equity Justified: PV of CF + PV Net Reversion NIr GIr PV CF +

© JR DeLisle, Ph.D. Net Reversion TRCm NIr GIr Stabilized NOI Sales Price - Sales Exp Net Reversion Appreciation Land Value Depreciation Amortization Mortgage CG Appr x 15% CG Depr x 25% Pb Net Sales Price

© JR DeLisle, Ph.D. Equity Justified: PV of CF + PV Net Reversion = Ej NIr GIr Sales Price - Sales Exp - Tax on Sale - Mtg. Bal. Net Reversion PV CF + PV NR

© JR DeLisle, Ph.D. Cash Flow: The One Key Word GINITIBTATNR Gross Income Net Income Taxable Income Before Tax Cash Flow After Tax Cash Flow Net Reversion

DCF CASE STUDY: INPUTS AND SCHEDULES

© JR DeLisle, Ph. D. Real Estate Fundamentals © JR DeLisle, Ph. D. Cash Flow Variables and TRC/FD/BD Inputs Selling Expense Exit Cap Rate DeprLife39 CGTxR15.00% CGTxV25.00%

© JR DeLisle, Ph.D. Discounted Cash Flow and Financial Ratios Schedule I: Cash Flow Schedule II: Depreciation Schedule III: Loan Amortization Schedule IV: Net Reversion Schedule V: Capital Gain Tax Schedule VI: Financial Ratios

© JR DeLisle, Ph.D. Schedule I: Cash Flow Overview

© JR DeLisle, Ph.D. Schedule I: Cash Flow Overview

© JR DeLisle, Ph.D. Schedule I: GI to NI

© JR DeLisle, Ph.D. Schedule II: Depreciation $3,436,567*(1/39) = $88,117

© JR DeLisle, Ph.D. Schedule III: Loan Amortization Calculate Payment Calc. Principal Balance Calc. Prin. Reduction Calc. Interest

© JR DeLisle, Ph.D. Schedule III(b): Loan Amortization

© JR DeLisle, Ph.D. DCF: NI to BTCF

© JR DeLisle, Ph. D. Real Estate Fundamentals © JR DeLisle, Ph. D. Schedule I: BTCF to ATCF If TI > 0, -TI * MtxR If TI < 0, TI * MtxR

© JR DeLisle, Ph.D. Schedule IV-V: CGTaxes on Sale & AT Proceeds Schedule IV: AT Proceeds Schedule V: Capital Gain Tax On Sale If, CapGain * 15% AccDepr * 25%

© JR DeLisle, Ph.D. Schedule I: Cash Flow 1- 10

INTRODUCTION TO DCF RATIOS: KEY FINANCIAL INDICATORS

© JR DeLisle, Ph.D. Schedule VI: Financial Ratios

© JR DeLisle, Ph.D. Schedule VI: Financial Ratios

© JR DeLisle, Ph. D. Real Estate Fundamentals © JR DeLisle, Ph. D. Debt Coverage Ratio Interpretation – DCR provides a measure of the safety of the mortgage position, indicates the cushion between required payments and NOI. – DCR’s should normally be 1.2 or more Equation DCR: 1.3 Target

© JR DeLisle, Ph.D. Lecture Review The Value Proposition Frontdoor/Backdoor Models DCF Prelude DCF: A Visual Overview One Word: GiNiTiBtAtNR Basic Inputs Introduction to Discounted Cash Flow Schedule 1: Pro Forma Cash Flow Schedules II-III: Depreciation and Loan Amortization Schedules IV-V: Capital Gain Taxes and Net Reversion Schedules VI: Financial Ratios DCF Schedules

Feedback: Privacy Policy Feedback
Do Not Sell My Personal Information
About project: SlidePlayer Terms of Service

© 2024 SlidePlayer.com Inc. All rights reserved.