Develppmwnt Appraisal

Question 1

What is a DCF?

Answer 1

Method of valuing future cash flows in present day terms using a discount rate.

Question 2

What are the reasons you discount the cash flows in a DCF?

Answer 2

• opportunity cost
• inflation

Question 3

What are the main advantages of using a DCF?

Answer 3

Explicitly model rental growth
Transparent
Useful where little evidence
Complexity: deals with a number of variables

Question 4

What are the disadvantages of using a DCF?

Answer 4

Complicated
Open to interpretation (more areas of debate)
Forecasting can lead to uncertainty
Can de come subjective
Easy to abuse inputs

Question 5

What review covers DCF?

Answer 5

Independent review of real estate Investment valuations 2022

Question 6

Who undertook the independent review of real estate investment valuations?

Answer 6

Peter pereira gray

Question 7

What is a discount rate?

Answer 7

The rate used when calculating the present value of future cash flows

Question 8

Fundamentally what does a discount rate include?

Answer 8

Risk

• market risk
• property risk

Question 9

What is a hurdle rate/ mimimum rate of return?

Answer 9

Specific rate based on investors minimum acceptable return

Question 10

How many different ways can be used to calculate an NPV using a DCF?

Answer 10

2

Using discount rate

Using hurdle rate

Question 11

What is a discount rate made up of?

Answer 11

Risk free rate (achievable in a bank) or government bond + risk rate