Waldo Case

Case Study 2, Waldo County and the DownEast Tourist Mall Project

Ryan Dresher

Ashley Moss

MGMT – 565 Financial Analysis 1

September 17, 2012

Mohamed Elaoudiy

Southwestern College Professional Studies

Waldo County and the DownEast Tourist Mall Project

A case study in the text of Brealey, R.A., Stewart, M.C. and Franklin, A. requires George Chavez, presumably the CFO of Mr. Waldo County’s successful real estate development company, to evaluate the idea of a shopping mall somewhere in the northeast part of the United States. George must do this over a weekend and present his findings to Mr. County first thing Monday morning. The summery will include documented evaluation of the forecast numbers and whether or not they support the project.

Background

Mr. Waldo County has a knack for finding effective locations for real estate development. However, since he is not a finance expert, he must rely on his top financial team members to check the feasibility of new projects.

The newest project is a large tourist mall, focusing on a target market of tourists on the way toward Maine. The $90 million project will draw income from both the rent of space by the retail tenants and 5% of each tenant’s gross sales.

The DownEast Mall Project

Construction will take three years and the mall will be built to the usual high standards required by the company. With the extra quality, the mall will not need restoration for approximately 17 years, which will result in 15 years of income. The cost of the project will be depreciated on a straight line basis starting in year three and continuing for the remaining 15 years. This will allow the showing of larger income and consistent returns during those years. The land will retain it’s value and will show as an asset of $30 million after 17 years. Inflation is expected to increase by 2% per year and the cost of capital is 9% nominal. The company is taxed at 35% which is part...