CONFIDENTIAL APIJUN 2018/RES511 UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE : INVESTMENT APPRAISAL COURSE CODE RES511 EXAMINATION : JUNE 2018 TIME : 3HOURS INSTRUCTIONS TO CANDIDATES 1 This question paper consists of two (2) parts: PART A (2 Questions) PART B (2 Questions) 2 ‘Answer ALL questions from PART A and PART B in a separate Answer Booklet. Start each answer on a new page. 3 Do not bring any material into the examination room unless permission is given by the invigilator. 4 Please check to make sure that this examination pack consists of i) the Question Paper ii) two (2) Answer Booklets — provided by the Faculty iil) Parry's Valuation Table provided by the Faculty 5 ‘Answer ALL questions in English DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO This examination paper consists of 6 printed pages {© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 2 APIJUN 2018/RES511 PART A QUESTION 4 A freehold property of 20-storey mixed office building in a city centre is recently leased for a term of 30 years with rent review for every 10 years. The rentals are subjected to the owner responsibility for property outgoings. The details of floor area and rental values of the subject property are as follows’ Floor GFA ___ Rental Values (RM psfipa) _— (sq. ft.) | 1%. 10 years | 2°. 10 years | 3%. 10 years FRV Ground | 10,000 200.00 | 280.00 392.00 410.00 18 9,000 160.00, 224.00 313.60 320.00 2 8,500_| 130.00 | _ 182.00 254.80 260.00] 35to6. | 7,500 110.00 154.00 215.60 220.00 7. to 10% 7,500 95.00 ~133.00 186.20 200.00 11%. to 14". 7,500 80.00 112.00 156.80 170.00 | 15". to. 17". | 7,500 70.00 98.00 137.20 150.00 | 18. to 20% 7,500 65.00 91.00 127.40 | _140.00__| According to the information acquired from market study, the rate of return for freehold terest is approximately 10% per annum. The Annual Sinking Fund is 3% per annum and income tax is 25% per annum. You are required to estimate the following: a) The net rental values. (4 marks) b) The owner's interest by using conventional investment method of valuation. (10 marks) ©) The lessee’s interest by using sinking fund approach (11 marks) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 3 APIJUN 2018/RES511 QUESTION 2 ‘An investor seek for your advice on the viability of proposed property investment which is a freehold interest of 10-storey mixed commercial building in a city centre. According to the rental information provided, the subject property could be leased for a term of 10 years with review for every 2 years at an initial rental of RM1.0 million per annum (gross). The Full Rental Value of similar property is RM1.1 million (net), the expected rental growth is 3% per annum and the reversionary yield is 10% per annum. Based on the information given, calculate: a) The amount of capital that should be invested by using the conventional method. (5 marks) b) By using the Discounted Cash Flow Approach, calculate: i) The Net Present Value (NPV) (8 marks) ii) The Internal Rate of Return (IRR), if the investor's targeted yield is 12%. (12 marks) (© Hak Cipta Universit Teknologl MARA CONFIDENTIALCONFIDENTIAL 4 APIJUN 2018/RES511 PARTB QUESTION 4 Maju Jaya Sdn. Bhd. specialises in the investment of local, privately run recreational centres throughout the country, Typically, the company will undertake considerable demographic analysis and assess the potential for investing in such a centre in a particular area. Areas targeted are typically those with a high proportion of middle-income families (young age profiles, the parents with professional occupations and car owners) and with poor or non- existent public recreational facilities. The centres offer a range of sports and related recreational facilities: squash, badminton, tennis courts, swimming, gym, sauna together with cafe and restaurants. The centre facilities are offered on an annual membership basis. After some initial analysis, the company is considering to invest in one such centre in Subang Jaya. Detailed planning permission has been obtained and financial support from the ‘company’s bank has been approved. On this particular site, the company is considering a range of options: Option A: Build a large centre offering a full range of faciities. [Option 8: | Build a medium-sized centre with a selected range of facilities. Over the next two years, assess whether the centre should be further | expanded to have full range faciities. ‘Option C= | Delay the decision regarding the size of the centre until a detailed market analysis has been completed (expected to take a further 12 months). At that time, a decision would be taken to build either a large centre or a medium-sized centre. This additional market analysis would cost an additional of RM120,000. To assist in its its analysis, the company has commissioned forecasts of the likely levels of use of the centre and undertaken a financial assessment of the various options. ') Preliminary market research indicates that for Option A, the probability of demand for the centre's facilities being high is 0.6, and of demand being low is 0.4. With high demand, the company stands to make an estimated RM950,000 profit. With low demand, it would make a loss of RM700, 000. ii) For option B, the probabilities of high and low demand remain the same. If demand turns ‘out to be low, then the company has already decided it would not expand the centre any further. Projected profit is RM100,000. However, if demand tums out to be high, the ‘company has a further option of expanding the centre, although it has not yet decided if it should do this. Such an expansion might be successful and generate estimated profit of RM650,000 but if it is not successful, the company will lose RM100,000. The chance of a further expansion being successful has been put at 0.9. if the company does not expand when the demand is high, the profit will be RM500,000. ili) If more detailed market analysis is undertaken in Option C the probabilities of high and low demand change to 0.7 and 0.3 respectively, since the company will be able to target its marketing and advertising more precisely. However, after such analysis has been completed the company will stil have to decide whether to build a large centre (as in Option A) or a medium-sized centre (as in Option B), although in this latter case (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 5 APIJUN 2018/RESS11. it would not subsequently be worthwhile expanding the medium-sized centre any further. For a large centre, the financial outcomes are a profit of RM950,000 if demand is high and a loss of RM700,000 if demand is low. If a medium-sized centre is built, the company estimates a profit of RM700,000 if demand is high but a profit of only RM100, 000 if demand is low. a) Develop the decision tree for the company’s problem (10 marks) b) Calculate the Expected Monetary Value (EMV) of the various alternatives. (12 marks) ©) If the company adopts a holistic approach taking into account of the risk factor, identity the best option to the company on which investment strategy it should select. (3 marks) QUESTION 2 Messrs. Lentang Jaya Property Investment Berhad is planning to develop mixed commercial ‘schemes in Manjung Point, Lumut, Perak. The land has been identified and the feasibility study has been carried out by real estate consultant engaged by the developer. The land also has been approved by Majlis Perbandaran Manjung to be developed. In order to stay competitive, the developer is trying to establish the most effective practice to be implemented in the project. They are seeking for your advice thus by giving the details of the pre-development stages activities and the estimated duration of each activity as well as immediate preceding activity as follows: ACTIVITY | DESCRIPTION OF ACTIVITY | DURATION IMMEDIATE a (WEEKS) | PRECEEDING ACTIVITY A Develop final working plans 4 - B__ | Develop specifications 2 7 A C__| Develop Cost Analysis [2 A D | Develop detailed construction 3 A budget a E | Develop site and landscape 3 8 plans - F | Building contract tender 5 C G | Secure and signed contract 2 E from contractor al _ H___| Secure construction financing 3 BF - 1 ‘Secure permanent financing 3 GH J Determine exterior and trim 4 c surfaces and building materials K [Secure local government 6 D approval - TL | Secure work permits so iiK (© Hak Cipta Universit Teknologl MARA, CONFIDENTIALCONFIDENTIAL, 6 APIJUN 2018/RES511 a) Construct the critical path model to represent the logical sequence of the activities. (10 marks) b) State the critical and non-critical activities and the available floats. (12 marks) ¢) Estimate the total time taken for the whole activities, if activity J is extended to 6 weeks. (3 marks) END OF QUESTION PAPER (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL