Question :
Find out the valuation of the factory using the investment method.
net rental : RM 150k now
market rent : RM 180k
tenure : freehold
tenancy : 5 year
risk yield : 7% now and 8% after 5 years
student have to find out the
1) Term Method using formula YP x Rent received
2) Reversion Value using formula YP x Rent received
Answer :
1) Term Method using formula YP x Rent received
( Leasehold )
a) find out PV Present Value using the formula 1 / (1+i )^n
PV = 1 / ( 1 + 0.07 ) ^5
= 1 / ( 1.07 ) ^5
= 1 / 1.40255
= 0.712987
b) find out the YP Year Purchase using the forumula (1 - PV) / i
YP = (1 - 0.712987 ) / 0.07
= 0.28701 / 0.07
= 4.1001
c) find out the Term Value using formula YP x Rent Received
Term Value = 4.1001 x RM 150k
= RM 615,021
2) Reversion Value using formula YP x Rent received
( Freehold )
a) find out PV Present Value using the formula 1 / (1+i )^n
PV = 1 / ( 1 + 0.08 ) ^5
= 1 / ( 1.08 ) ^5
= 1 /1.46932
= 0.6806
b) find out the YP Year Purchase using the formula 1 / i
YP = 1 / 0.08
= 12.5
d) YP x PV
= 0.6806 x 12.5
= 8.5073
e) find out the Total Reverse Value using formula YP x Rent Received
Total Reverse Value = 8.5073 x RM 180k
= RM 1,531,314
3) Total Capital Value using formula term value + reversion value
Total capital value
= RM 615,021 + RM 1,531,314
= RM 2,146,335
