Solution Manual for Valuation 2nd Edition by Titman

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Product details:

• ISBN-10 ‏ : ‎ 0136117015
• ISBN-13 ‏ : ‎ 978-0136117018
• Author: Sheridan Titman

Seeing the economic realities of the modern corporation through an integrated approach.

Titman/Martin presents an integrated approach to both project and enterprise valuation, showing readers the economic realities that today’s modern corporations face. This text also goes beyond standard DCF analysis by including additional valuation methods that are commonly used in practice, such as comparables, simulations, and real options.

The second edition includes an increased emphasis on enterprise valuation, a new chapter on financial forecasting, and enhanced examples and illustrations.

Table of contents:

1 Microeconomic Concepts 3

1.1 Supply and demand, markets and equilibrium price determination 3

1.2 The property market and price determination 6

1.2.1 Rent for land 6

1.2.2 Land use rents 8

1.2.3 Land use intensity 12

1.3 Location and land use 14

1.4 The economics of property development 22

1.4.1 Type and density of property development 22

1.4.2 The timing of redevelopment 25

Notes 28

References 29

2 Macroeconomic Considerations 31

2.1 The commercial property market 31

2.2 Property occupation 33

2.3 Property investment 34

2.4 Property development 43

2.5 Property and the wider economy 44

References 48

3 What is Property Valuation 49

3.1 Introduction 49

3.2 The need for valuations 50

3.2.1 Types of property to be valued 52

3.2.2 Bases of value 57

3.3 Determinants of value 60

3.3.1 Property-specific factors 60

3.3.2 Market-related factors 66

3.4 Valuation procedures 69

3.4.1 Terms of engagement 71

3.4.2 Inspections and investigations 71

3.4.3 Valuation report 73

3.5 Measurement 73

Appendix – Inspection checklist 76

Notes 81

References 81

4 Valuation Mathematics 83

4.1 Introduction 83

4.2 The time value of money 84

4.2.1 Single period investments 85

4.2.2 Multi-period investments 86

4.2.3 Tax 93

4.3 Yields and rates of return 94

4.3.1 Yields 95

4.3.2 Rates of return 96

4.3.3 Yields and rates of return 98

References 99

PART B VALUATION METHODS 101

5 Comparison Method 103

5.1 Introduction 103

5.2 Sources of data 104

5.3 Comparison metrics 106

5.3.1 Relative value of retail ground floor ‘zones’ 107

5.4 Comparison adjustment 110

References 114

6 Investment Method 115

6.1 Introduction 115

6.2 All-risks yield (ARY) methods 117

6.2.1 Valuation of rack-rented freehold property investments 117

6.2.2 Valuation of reversionary freehold property investments 119

6.2.3 Valuation of leasehold property investments 127

6.2.4 Example: ARY Investment method 134

6.3 Discounted cash-flow (DCF) methods 135

6.3.1 A discounted cash-flow valuation model 136

6.3.2 Applying the DCF valuation model 142

Notes 157

References 157

Further reading 158

7 Profits Method 161

7.1 Introduction 161

7.2 Method 162

7.3 Example of a profits method valuation 166

7.4 Summary 169

Notes 170

References 170

8 Replacement Cost Method 171

8.1 Introduction 171

8.2 Method 172

8.3 Application 178

8.3.1 Valuation of an owner-occupied property for accounts purposes 178

8.3.2 Valuation for insurance purposes 178

8.4 Issues 178

8.4.1 Definitional problems 179

8.4.2 Methodological problems 181

8.5 Summary 184

Notes 185

References 186

9 Residual Method 187

9.1 Introduction 187

9.2 Conventional residual land valuation 188

9.3 Problems with the residual method 199

9.4 Cash-flow residual model 202

References 206

10 Automated Valuation Models and Computer-Assisted Mass Appraisal 207

10.1 Introduction 207

10.2 Method 207

10.2.1 Simple linear regression (dependence of one metric variable on another) 208

10.2.2 Multiple linear regression (dependence of one variable on two or more variables) 211

10.3 Example 215

10.3.1 Data 215

10.3.2 Descriptive statistics 216

10.3.3 Simple linear regression 216

10.3.4 Multiple linear regression 220

10.4 Multiple regression analysis: Research and applications 226

10.4.1 Computer-assisted mass appraisal 228

10.4.2 Automated valuation models 229

10.5 Advantages and disadvantages of regression-based valuation 230

Notes 231

References 231

PART C VALUATION APPLICATIONS 233

11 Lease Pricing 235

11.1 Introduction 235

11.2 Lease incentives 236

11.2.1 Rent-free periods 237

11.2.2 Capital contributions 241

11.2.3 Premiums and reverse premiums 242

11.3 Alternative lease arrangements 246

11.3.1 Stepped rents 246

11.3.2 Turnover rents 247

11.3.3 Short leases and leases with break options 249

11.4 Valuations at rent review, lease renewal and lease end 252

11.4.1 Rent reviews 252

11.4.2 Surrender and renewal of leases 253

11.4.3 Compensation for disturbance and improvements 255

11.4.4 Example 1 256

11.4.5 Example 2 259

Notes 262

References 263

12 Valuations for Financial Statements and for Secured Lending Purposes 264

12.1 Valuing property for financial statements 264

12.1.1 Financial reporting standards and valuation bases 265

12.2 Methods of valuing property assets for financial reporting purposes 272

12.2.1 Example valuations 274

12.3 Valuations for lending purposes where the loan is secured against commercial property 279

12.3.1 Example 281

Notes 285

References 286

13 Valuations for Taxation Purposes 287

13.1 Capital gains tax and corporation tax 287

13.1.1 Grant of a long lease out of a freehold or long leasehold interest 294

13.1.2 Grant of a short lease out of a freehold or long leasehold interest 295

13.1.3 Grant of a short lease out of a short leasehold interest 296

13.2 Inheritance tax 297

13.3 Business rates 299

13.3.1 Rental comparison 302

13.3.2 Profits method 303

13.3.3 Contractor’s method 304

Note 306

References 306

14 Valuations for Compulsory Purchase and Compensation 307

14.1 Compensation for land taken (compulsorily acquired) 308

14.2 Compensation for severance and injurious affection 311

14.2.1 Compensation where part of an owner’s land is acquired 311

14.2.2 Compensation where no land is taken 314

14.3 Disturbance compensation 315

14.3.1 Case study 316

14.4 Planning compensation 317

14.4.1 Revocation, modification and discontinuance orders 318

14.4.2 Purchase notices and blight notices 318

14.5 A note on CGT and compensation for compulsory acquisition 319

Notes 320

References 321

15 Specialist Valuations 322

15.1 Operational entities or ‘trade-related’ properties 322

15.1.1 Hotels, guest houses, bed & breakfast and self-catering accommodation 322

15.1.2 Restaurants, public houses and nightclubs 324

15.1.3 Care homes 328

15.1.4 Petrol filling stations 330

15.1.5 Student accommodation 331

15.1.6 Serviced offices 332

15.1.7 Data centres 335

15.2 Valuation of contaminated land 335

15.3 Synergistic value 339

15.3.1 Physical merger 339

15.3.2 Legal merger 339

15.4 Special Purpose Valuations 340

15.4.1 Charitable Valuations 340

15.4.2 Local authority disposals of land for less than best consideration 341

Notes 341

References 342

16 Investment Valuations – Further Considerations 343

16.1 Short leases and leases with break clauses 343

16.2 Over-rented property investments 346

16.3 Valuation accuracy, variance and uncertainty 349

16.3.1 Valuation accuracy 349

16.3.2 Valuation variance 350

16.3.3 Valuation uncertainty 352

16.3.4 Sensitivity analysis 353

16.3.5 Scenario testing and discrete probability modelling 356

16.3.6 Continuous probability modelling and simulation 359

16.3.7 Arbitrage (tenant yield approach) 363

Notes 368

References 369

PART D APPRAISAL 371

17 Investment Appraisal 373

17.1 Introduction 373

17.2 Appraisal information and assumptions 375

17.2.1 Rent and rental growth 375

17.2.2 Target rate of return 377

17.2.3 Holding period 380

17.2.4 Exit value 381

17.3 Appraisal methodology 381

17.3.1 Payback method 381

17.3.2 Yield 382

17.3.3 DCF methods of investment appraisal 383

17.3.4 Example 393

17.4 Risk analysis in property investment appraisal 395

17.5 Financing property investment 398

Notes 401

References 401

18 Development Appraisal 403

18.1 Introduction 403

18.2 Conventional residual profit appraisal 403

18.2.1 Profit as a percentage of cost 405

18.2.2 Development yield 406

18.2.3 Criticisms 406

18.3 Cash-flow profit appraisal 408

18.3.1 Criticisms 412

18.4 Development risk 413

18.4.1 Risk analysis 414

18.4.2 Risk management 427

18.5 Development finance 429

18.5.1 Borrowers of development finance 429

18.5.2 Type of finance 430

18.5.3 Sources of development finance 431

18.5.4 Duration of funding 432

18.5.5 Typical development finance structures 433

18.5.6 Gearing 439

18.5.7 Risk management in property financing 439

18.5.8 Finance accounting 441

18.5.9 Sales revenue 444

Notes 452

References 453

Glossary 454

Index 460

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