Can someone please help me!! internship case study!!
Hello everyone
I'm currently doing a case study for an acquisition role in a real estate investment firm.
one of the problems they are asking me to do is to calculate for the initial price of purchase when im given a 10 year prospective cash flow, irr. (I don't know if this is relevant but the gross sales proceeds of the final sale after 10 years will be at a cap rate of x% of the forward year NOI).
thank you!
direct capitalization approach or dcf approach. sales comparabales if youre given them too
did they give you the exit cap rate?
did they give you the IRR?
How can they give you an IRR without an initial cash outflow?
Put the cash flows into excel with the residual sale price in the last year including the NCF (make sure you use NOI for the sale with the CAP rate they gave you and not NCF). Enter in the IRR or XIRR formula if they gave you dates and include these plus your purchase value in year 0 (the number you are solving for). Now you can use trial & error until your purchase price changes the IRR to the number you are looking for. A better way to do this is to use "Solver" on excel, but if you're a beginner try that approach later on your own time.
pe_re24, it looks as if you're a beginner as well. Why on earth would you do "trial and error" with the IRR function? All you have to do is use the NPV function and plug in the given IRR number as the discount rate...the output is the initial outlay you need to get that return.
Different ways to get to the same answer. I would use solver, but glad to see you're so passionate about this subject.
Would this not give you a value of zero? Isn't the IRR the discount rate that makes your NPV zero? Excuse my ignorance.
No it would not give you 0.
In this case, year 0 CF is unknown and is what he is solving for. So, if he uses the IRR to discount the year 1-10 cash flows, he's going to wind up with a positive number (assuming the cash flows are >0). Now, if you treat that price you just solved for as a negative year 0 CF and add it to the NPV of the cash flows discounted at that same given IRR you just discounted the cash flows back with, that's what is going to give you 0
Yup...Use excel solver for a simple RE model when you could just use the most simple and universal function in excel. Sound like you definitely know what you're talking about.
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