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What to do with an inherited piece of land

Anonymous A asked on Jan 17, 2019 - 3 answers

Hi All,

during my preparation for case interview, I came across a not “classical” case. I would like to know feedbacks on my framework and overall approach. The case is “your friend has inherited a piece of land and would like to know what to do with it”- No other information available.

I approached it as an investment assessment. Please find below my framework summarized.

  1. CONTEXT ASSESSMENT --> from this assessment I would extrapolate the option/destination for the land to assess financially in my 2nd branch
    1. Internal factors
      1. Friend’s fund availability
      2. Friend’s preferences and skills (e.g. managerial skills)
      3. Land’s feature: location, land fertility, ecc
    2. External factors
      1. Businesses present around the land
      2. Eventual overall industries growth rates
  2. OPPORTUNITY ASSESSMENT--> from the option arisen from the first branch (that could be either launch a business or rent/sell the land) I would assess it with a classical NPV/ROI/Payback of future cash flows (for sake of simplicity profits)
    1. Quantitative factors
      1. Revenues forecast
      2. Costs forecast
    2. Qualitative factors
      1. Advantage/disadvantages of the choice
  3. RISK/NEXT STEPS

What do you think? Could it be a good approach? Did I miss something in my analysis?

Thank you very much!

3 answers

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Sidi
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replied on Jan 17, 2019
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Hi Anonymous,

I would suggest the following approach:

1. Verify the objective of your friend (using the land for earning money? using the land to enhance his/her own quality of life? use the land for altruisitc purposes? etc.)

2. Based on the objective, develop the different options for usage (e.g., if the objective is to earn money, then the land could be rented out, sold, exploited for minerals or oil, used to install productive assets (like a factory, a theme park, etc.)

3. I would then assess each option based on three conditions:

  • (i) does it maximize earnings?
  • (ii) does my friend have the required capabilities (or can acquire them) to realize it?
  • (iii) Can my friend cope with potential risks associated with this option?

The option of choice will be the one which generates the highest earnings, under the condition that capabilties are in place and risk can be managed.

Cheers, Sidi

Francesco
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replied on Jan 20, 2019
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Hi Anonymous,

I agree with Sidi and Vlad on the importance of clarifying the goal at the beginning; I would also add to the structure a point on possible synergies and cannibalization with other activities the friend currently owns, related to the goal.

Best,

Francesco

Vlad
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replied on Jan 17, 2019
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Hi,

Agree with Sidi here. I would not even try making a structure before clarifying the objective. Each objective might lead to a completely different approach to solving the case, whether its the business use or reselling the land immediately or some non-profit usage.

Best!

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