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Angus Cartwright has been hired as the investment planner and advisor for two clients named John and Judy DeRight and. Both of these clients have acquired a new passion for real estates and thus have approached Angus Cartwright to recommend a best option for their investment. Both the clients are inclined towards acquiring a spacious properly that is so large to an extent it attracts real estate management companies that are professional and also to accrue a minimum leverage of at least 12% after tax. Also, both the clients are of a strong belief that real yields many other additional benefits like diversification of assets, serves as a guard against inflation, along with offering tax benefits to a little extent. An extensive capital investment analysis was done by Angus Cartwright in order to eventually offer advice to both the clients about the choice of investment they should be making.
Investment Advice offered to John and Judy
Following an extensive analysis of four different properties, the following was advised by Angus Cartwright:
It was advised that Judy DeRight invests in Allison Green and 900 Stony Walk. These properties were chosen as the best investment options because both these properties have indicated to have the highest values of NPV out of all the four properties. The NPVs of these two properties are $734,290 and $699,520, respectively (Refer to Exhibit no. 6). Moreover, it is also apparent that two other properties, namely the Ivy Trace and the Flower Building, the IRR are a little high. Despite having a higher IRR, both these properties have a less NPV which is considered the best determinant for investment choice and their projected future value. Judy, if investing in two properties instead of a single property, will have a choice of better diversification and this also might result in Judy receiving lesser management fee because of greater economies of scale. The risk profile of Mr. John DeRight is indicative of the fact that he is highly risk averse when compared to Judy and hence a negative recommendation to this particular client is made and he cannot invest in the same properties as Ms. Judy would. The breakdown of IRR validates that only if there exists a positive scenario, the return netted from selling the property after ten years is slightly higher or uniformly divided with the return captured from the operating cash flows on a yearly basis. This further dispirits Angus Cartwright from endorsing this particular investment to Mr. John DeRight as he might not be in a situation to wait for ten years for capturing significant share of the rate of return.
Harvard Business School. "Angus Cartwright III." 30 September 2004. Harvard Business School. 10 June 2014