MCS Flashcards
Quantifying cashflows for NPV
Talk about issues in estimating the costs.
Are we experienced in the proposed activity?
Will we be able to predict sales?
Consider:
planning & H&S regs
institution reputations
timescales / contract spec changes
Operating costs
Ask to see management accounts to check things like salaries
Assess quality - refurbishment?
Different locations? can we charge higher rent?
WACC
Weighted average of the costs of different sources of long term finance: debt & equity
EQUITY
- Ke is the return earned by shareholders
- investment risk ^ = Ke^ = WACC^
- Outside of normal business operations? risk increased
DEBT
- Kd is the return earned by lenders
- cheaper than equity, more debt reduces wacc
- BUT Debt ^ = risk^ = Ke^
- Secure against NCAs (plenty in property to secure against) to reduce risk to lenders
Business Model
DEFINE VALUE
- Provision of safe & attractive accommodation for students
- consider H&S regs, student needs e.g. more space/ensuites?
CREATE VALUE
- Proactive in identifying sites and constructing high quality PBSA
- Consider planning & construction processes & material quality. Low crime rate sites needed
DELIVER VALUE
- Develop strong relationships with institutions & students
- Consider promotional activities in new locations where reputation needs building
CAPTURE RESIDUAL VALUE
- Charge realistic prices to students
- Consider if new location? Developing country? what’s a realistic price? too high = compromised relationships, too low = limited residual value
Intangible Assets
Capitalize when: probable future economic benefits and the cost of the asset can be measured reliably
Acquired IA = recognize @ fair value
Purchases IA = capitalize @ cost
Internally generated IA = DO NOT recognize, can’t measure reliably as no active market
Research - expense
Development - Capitalize if meet PIRATE criteria
P -probable future economic benefits
I - intention to complete
R - resources to complete
A - ability to use or sell
T - technically feasible
E - expenditure reliably measured
