I desparetely need help with a DCF valuation...!
Hello there,
I am a beginner so apologies for sounding like an amateur. I am currently analyzing a DCF valuation from CBRE for a commercial property. See the image below. The discount rate in the DCF is set at 8%. The rent/cash from the property flows monthly in advance (as far as that is relevant).
I'm confused, because the NOI in year 1 is 129.432, of which the PV is then 124.878. The NOI in year 2 is 140.815 of which the PV is 125.895, and the NOI in year 3 is 118.887, of which the PV is then 98.477.
When I calculate the PV of these cash flows at 8% I arrive at 119.844 for year 1, 120.726 for year 2 and 94.376 for year 3, so completely different. I am sure that I am doing something wrong or misunderstanding something.
I was wondering if any of you could help me out. I created my account at Wallstreet Oasis for the purpose of asking for help on this matter. Many thanks in advance for your time, I really appreciate it!
Probably mid year vs end of year discounting. Check your “n”
This answer is correct OP, they're using midyear discounting. Your first year would be CF1/((1+r)^.5), second year would be CF2/((1+r)^1.5) and so on
Yes many many thanks for this. I do get it now! They are without a doubt doing this. Unbelievable that I never learned this in university.
Although when I apply the formula in excel (so 0.5 for year 1, 1.5 for year 2 etc.), I do arrive at different values. The first year for instance is 124.456 when I apply 0.5 for year one (instead of 1). The second year I arrive at 125.462.
I think this calc is set up in Argus Enterprise. I dont know exactly how they have calculated it but their figures do turn out a bit higher. I am not sure why as of now.
How are you doing your PV calc to get 119.844 for Y1? What inputs are you using? Also, what cells are being referenced by your DCF calc?
By (in excel) =129.432*1/(1+0.08)^1 = 119,844. That would be the PV of 129.432 in the first year at 8%.
Your PV calc is fine. I'd look into how you're doing the DCF calc. What is the formula in the Y3 DCF cell? I tried a variety of scenarios and but couldn't reproduce those DCF numbers.
The problem is that I dont now as I actually do not have the excel file. I just have a picture so I cant look up the formula. Although I do arrive extremely close to the PVs when I apply mid-year discounting, their figures are slightly higher. I dont understand why as of now but I guess Im much closer to the truth as previously.
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