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?
Get Active in Our Amazing Community of Over 452,000 Peers!
Schedule mock interviews on the Meeting Board, join the latest community discussions in our Consulting Q&A and find like-minded Case Partners to connect and practice with!
Just confused about calculating the value of the land - isnt interest rate supposed to be subtracted by growth rate?
Overview of answers
Upvotes
Best answer
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."
Was this answer helpful?
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.
Was this answer helpful?
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
Was this answer helpful?
Content Creator
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate
1,096
Meetings
77,561
Q&A Upvotes
232
Awards
151 Reviews
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?