Question

The airport will have an effective gross income of $30 million over the next year and operating expenses that are 20% of effective gross income over the forecast horizon after being $10 million this year due to a major renovation. The effective gross income is expected to continue to grow at the rate of the local economy which is a steady 3.25%. A going-in cap rate based on some fairly stale comparables in this highly illiquid market is 6.75% and the going-out cap rate is forecast to be the same.

The seaport enjoyed $38 million in effective gross income last year but this will only grow at 1% a year due to deglobalization effects. Last year operating expenses were $9.5 million but they are expected to grow at the local rate of inflation of 7.5% which will decline linearly in time before hitting the central bank target of 2% (where it will remain thereafter) in 10 years time. The pension plan requires a 12% return on an asset like this and the going out cap rate is expected to be 9% when the host country has completed its industrialization and transition to a consumer economy.

Calculate the value of each of these properties but just as importantly your portfolio manager wants you to produce margins of error where you assume each going-out cap rate was off by 25%

Answer 1

Value of each properties as per the gross income =30,0000000x3.25/100x6.75/100

=30,0000000x0.0325x0.75

=7312500

value of each properties as per effective gross income and inflation

=10,0000000x25/100=25000000 units

Industrialization is the process by which an economy is transformed from primarily agricultural to one based on the manufacturing of goods. Individual manual labor is often replaced by mechanized mass production, and craftsmen are replaced by assembly lines. Characteristics of industrialization include economic growth, more efficient division of labor, and the use of technological innovation to solve problems as opposed to dependency on conditions outside human control.

It includes following factors which are as follows

a) Industrialization is a transformation away from an agricultural- or resource-based economy, toward an economy based on mass manufacturing.
b)Industrialization is usually associated with increases in total income and living standards in a society.
c)Early industrialization occurred in Europe and North America during the 18th and 19th centuries, and later in other parts of the world.
d) Numerous strategies for industrialization have been pursued in different countries over time, with varying levels of success.

Understanding Industrialization

Industrialization is most commonly associated with the European Industrial Revolution of the late 18th and early 19th centuries. Industrialization also occurred in the United States between the 1880s and the Great Depression. The onset of the Second World War also led to a great deal of industrialization, which resulted in the growth and development of large urban centers and suburbs. Industrialization is an outgrowth of capitalism, and its effects on society are still undetermined to some extent; however, it has resulted in a lower birthrate and a higher average income.

Industrial Revolution

The Industrial Revolution traces its roots to the late 18th century in Britain. Prior to the proliferation of industrial manufacturing facilities, fabrication and processing were generally carried out by hand in people's homes. The steam engine was a key invention, as it allowed for many different types of machinery. Growth of the metals and textiles industries allowed for the mass production of basic personal and commercial goods. As manufacturing activities grew, transportation, finance, and communications industries expanded to support the new productive capacities.

The Industrial Revolution led to unprecedented expansion in wealth and financial well being for some. It also led to increased labor specialization and allowed cities to support larger populations, motivating a rapid demographic shift. People left rural areas in large numbers, seeking potential fortunes in budding industries. The revolution quickly spread beyond Britain, with manufacturing centers being established in continental Europe and the United States.