Investment and Valuation Decision using DCF - Report and Excel


Two investors (Mr X and Ms Y) request that you recommend an investment in either an

office building or an industrial/warehouse building in the Sydney region. The two investors

decide to jointly invest with a 60/40 share on all returns and costs of the property you

recommended. Assume they can jointly borrow 65 percent from a bank at an interest rate

of 6% for the investment. You are required to produce a report for the recommendation and

your fee for the recommendation is 1.5 per cent of the purchase price of the recommended

investment. A selection of these properties can be found from the links:

[url removed, login to view]


In your report, you need to include the following details:  

1) How much should the buyers pay for the recommended property?  

Requirements: you need to use capitalisation rates method to estimate the property


2) What are the benefits and risks of the investment, a ten‐year investment term is


a. You need to conduct a market study and find out the variables needed for

building a DCF model.    At least two tenancy agreement details with rent

reviews and incentive conditions are required. Appropriate assumptions can

be made.

b. You need to produce a ten‐year DCF model to support your recommendation;

c. You need to test sensitivity and scenario of the developed model to analyse

the risk involved.

3) Would the recommendation for a 15‐year investment be feasible? Why?  

a. You need to build a 15‐year DCF model to demonstrate this.

b. You need to conduct sensitivity and scenario analysis to analyse the risks they

may have involved.

4) What are the benefits for Investor Mr X (10 years investment is assumed)?

(Completed by Student A)

5) What are the benefits for investor Ms Y (15 years investment is assumed)?

(Completed by Student B)  

6) What are the benefits for the bank (the lender) (12‐year investment is assumed)?

(Completed by Student C)  

a. You need to build DCF models to support your discussion for 4) – 6).

b. You need to discuss the results.

Other assumptions  

 Adopt an interest only loan to be repaid at the end of the investment period.  

 Adopt a discount rate of 12% per annum.

 All costs and revenues provided are exclusive of GST.  

 You are not required to take GST into consideration for your solution.

You need to conduct your own research for all the required variables for developing DCF

models. The marking criteria are stated below for your reference.

Skills: Excel, Investment Research, Microsoft, Valuation & Appraisal

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