Reference no: EM133112482

After this exam and you're finished with the next Case, you pop into Burgers and Brew downtown after the restaurants reopen. You overhear some blokes at the socially-distanced end of the bar with some figures you think you now understand (thanks to this class). Your friends are wondering why you're bothering to listen to the conversation. But you smile to yourself and start to think about how you might turn back a quick response and either suggest the blokes at the end of the bar find another investment or perhaps offer your services (and maybe a little capital) to help these three get the project off the ground.

Bloke 1 says, "Okay, I'll start. 'I've got a $23 million price tag earning $1.6mm stable and growing at 1.0%.'"

Bloke 2 says, "Yeah, but there's so much ugly hair on that thing you'll need a wig just to keep a straight face."

Bloke 3 says to Bloke 1, "You didn't tell me that the property was sub-standard!"

Bloke 1 retorts, "Listen, it's true there's considerable deferred maintenance: About $1 million, one time but not immediately. And there's beauty in the franchise agreement we sealed with Comcast yielding half-a-mil diversifying the stream." So, what should you say? What could you say about what you've overheard? What you don't know, decide what's reasonable to presume and why and apply it (i.e. credit loss risk, etc.) At a minimum, there are at least a few things you'd like to have figured on the back of your napkin before you fire back at the end of the bar. You say to yourself, "I can't open my mouth intelligently without knowing the cap rate, the risk-free rate and this project risk premium, and a few other things.

You lean over and say, "Excuse me, gentlemen, I couldn't help overhearing your conversation. Take it from me,..."

CHOOSE: Yes or No. Make your case why it is a good or a bad idea with all supporting documentation. Assume your friends and these blokes know nothing. More importantly, WHY? Show ALL of your work and label everything including your calc definitions/descriptions (tell me what the number means). You will be evaluated by the comprehensiveness and clarity of your answers. Binary answers are useless and worth no points (as they would be in convincing these two blokes why you're good or bad at this assessment).