Just confused about calculating the value of the land - isnt interest rate supposed to be subtracted by growth rate? I.e. 0.1 - 0.04? And then we divide the value of the land with the preceeding value?
Back to overview
20
Hey Ian, really appreciate your answer -
Just a small follow-up - isnt the 4% appreciation to be interpreted as growth? And secondly, the value they have calculated is NPV, which they have calculated by multiplying cashflow (100,000) with (1 + 0.04). Is there an underlying formula here I am missing?
Global
Just confused about calculating the value of the land - isnt interest rate supposed to be subtracted by growth rate?
3
2.5k
Be the first to answer!
Nobody has responded to this question yet.
Hi Ukasha,
NPV is indeed calculated by divided the expected case flows by the interest rate minus the growth rate....where growth in cash flows is expected.
I may be missing something, but in multiple sections of the case, it is indicated that there is no growth. For example:
- "The market is expected to remain at the same level for the near future."
- "The gross margin will remain the same since the industry structure did not change."
2 comments
Ian is totally correct here! Be careful while reading the conditions of the case, it might confuse you and you'll unintentionally make some stupid mistakes.
Hello!
+1 to the previous answers.
This is why written cases are more difficult, sinc it´s difficult to get lost in the details, and it´s much easier to clarify when doing a case live
Hope it helps!
Cheers,
Clara
Sign up for free to read all answers.
Sign up for free to read all answers.
