April 2014
Intermediate to advanced
1344 pages
44h 24m
English
book
Cost of Capital: Applications and Examples, + Website, 5th Edition
by Shannon P. Pratt, Roger J. Grabowski, Richard Brealey
Content preview from Cost of Capital: Applications and Examples, + Website, 5th Edition
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APPENDIX 41A
Valuing Real Estate Entities1
Measuring Net Cash Flow for Real Estate Entities
Projected Cash Flow from Real Estate Operations
INTRODUCTION
Estimating the net cash flow associated with real estate entities is the focus of this appendix. Some real estate entities use their own set of definitions that parallel those used in business valuation. This appendix introduces the reader to the accounting measures that may be encountered in real estate entity valuations.
MEASURING NET CASH FLOW FOR REAL ESTATE ENTITIES
The anticipated financial benefits that come from investing in a real estate entity are no different from any other enterprise. The three sources of these benefits are:
- Earnings or cash flow (from operations or investments)
- Liquidation or hypothecation of assets
- Sale of the interest2
Real estate entities are going concerns engaged in a real estate-related business enterprise. Generally, the value of a going concern has been defined as the value of a business enterprise that is expected to continue to operate into the future. The intangible elements of going-concern value result from factors such as having a trained workforce, an operational plant, and the necessary licenses, systems, and procedures in place.3
The value of a going concern includes the tangible assets as well as the intangible assets.
Most real estate entities prepare consolidated ...
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