Business Case Studies & Business Publications

943-945 Warren Road

Conroy, Robert M.,...

Case

943-945 Warren Road

Conroy, Robert M.; Harris, Robert S.

F-1638 | Published May 11, 2011 | 6 pages Case

Collection: Darden School of Business

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This case, intended for MBA and executive education audiences, investigates whether an LLC should invest in a real estate deal. The materials provide a straightforward opportunity for applying discounted-cash-flow methods from the perspective of equity investors in the LLC. The investors know the terms of interest and principal payments on planned debt financing and have made forecasts of rental rates, occupancy, depreciation, future sale price, various expenses, and other items related to the property. The case can be used as an introduction to estimation and analysis of cash flows to the suppliers of equity. The setting provides opportunities for discussion of tax issues and risks.

Forecast cash flows related to a real estate investment. Evaluate an investment decision using discounted-cash-flow analysis. Examine cash flows to equity investors after paying the interest and principal due on a mortgage. The case can be used as a transition from equity cash flows to free cash flows and the corresponding transition in the definition of required returns on the two sorts of cash flow streams.