Where am I going wrong in this modelling test?

Hi Guys,

Bit cheeky of me to ask here and apologies for doing so, though I've been asked to complete the attached modelling test (instructions on first tab of the model).

I think I'm going wrong in the following 2 areas:

Debt - my levered returns are stupidly higher than my unlevered returns.

Corporate Tax - I have never been asked to account for corporate tax before in a model. I am attempting to only pay it in on profits only but I can just tell by the amount of guesswork that I'm doing something is wrong.

I have made some additional assumptions in the model not asked for in the test - please ignore these.

Any advice would be greatly appreciated - I just can't submit this piece of crap in it's current state.

Thanks all 

Attachment Size
Modelling test 1.77 MB 1.77 MB
 

Looks like you're not contributing any initial equity in your levered scenario. Your initial cashflows are positive, I would start by taking a look at that.

 
Most Helpful

A couple things:

  • The levered IRR is so much higher because you are using 90% leverage between the mezz and senior loans. I had a look at the calculations, and it seems that funds are being captured properly. I didn't actually audit formulas though.
  • IRR's are also high because the hold periods are so short (9 months and 2 y ears)
  • In the renovation example, you shouldn't have retail income during renovation (per the instructions). This will lower IRR's significantly.
  • I'm not sure about the corporate tax thing. I'm not sure why these properties wouldn't be held in a REIT.
 

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