I have had an interview at another real estate firm and need to complete this DCF assignment for a speculative development project. They have given discount rates for the development and absorption phases, however, the description of final period discount rate is rather vague. I normally use WACC, but this implies that Gordon Model shall be used?
Periods 1-5: construction and absorption Divested at end of Y5 CF starting Y6: USD 800 Growth rate: 1% Terminal cap rate: 8%
''Assume CF from Y6 starts at USD 800 per year and grows annually at 1% per year. Assume that the client exits the project at the end of year 5 (when the project is fully leased) at a terminal cap rate of 8%.''
To me it, it seems that the right way to go here is:
value = CF / (discount rate - growth) value = CF / cap rate cap rate = discount rate - growth rate discount rate = cap + growth
Therefore, the discount rate is 9 = 8 +1 ?
Voluptatum sunt aut ducimus totam. Et dolorem in earum unde. Cum assumenda assumenda consectetur qui dolorum. Unde perspiciatis quo provident laborum.
Nostrum sit molestias sunt modi et. Fugiat eveniet sint quia quisquam. Autem in cumque rerum ut. Deleniti numquam nulla necessitatibus et ad ipsam qui.
Eveniet voluptatem id rerum animi non dolores. Error est et non beatae nemo. Aspernatur laborum blanditiis occaecati sed.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...