A finished FIN-432 Topic 4 holding period cash flow projection example, projecting five years of income with vacancy and capital spending, pricing the sale and showing how much return the exit carries. Searches like "fin 432 topic 4 assignment example", "fin432 topic 4 sample" and "fin-432 topic 4 example" land here.
What a finished FIN-432 Topic 4 holding period cash flow projection looks like
The finished projection starts from illustrative first-year figures: potential gross income of 330,000, 5 percent vacancy and 125,000 of operating expenses, for net operating income of 188,500, a 6.28 percent entry yield on the price. Rents and expenses both grow 3 percent a year. An 80,000 roof and boiler replacement lands in year three, cutting that year's cash flow to about 119,980. The sale at the end of year five capitalizes year-six income of about 218,523 at 6.5 percent and deducts 4 percent selling costs, netting about 3,227,000. The unlevered internal rate of return is about 7.4 percent, and the sale supplies about three quarters of the present value. The seller's version, full occupancy, no capital outlay and a 6.0 percent exit, shows about 11.5 percent from the same building.
How a FIN-432 Topic 4 example is structured
Three blocks make up the projection: assumptions, an annual table and a sale. After the composite building and its price, every assumption is listed in one place, each marked illustrative: rent growth, vacancy, expense growth, the capital outlay and its year, the exit capitalization rate and selling costs. The annual table runs five years, from potential gross income through vacancy and operating expenses to net operating income, then subtracts capital spending to reach cash flow. The sale section computes the reversion from year-six income, explaining why an exit buyer prices the following year. The return section computes the internal rate of return and the share of value arriving from the sale. Two further runs move the exit to 6.0 and 7.0 percent, giving about 8.9 and 6.1 percent. The last section sets the seller's projection beside this one and names the three assumptions that separate them.
Assumptions gathered in one block
Growth rates, vacancy, the roof and boiler outlay, the exit rate and selling costs sit together, so any of them can be challenged without touching the table.
Capital spending below the NOI line
The one-time 80,000 outlay in year three reduces cash flow rather than net operating income, so a single replacement does not distort the income being capitalized.
The sale priced on year-six income
A buyer at the end of year five pays for the income ahead, so the reversion capitalizes about 218,523 at 6.5 percent before selling costs.
Three quarters of the value at exit
Discounted at the projection's own return, the net sale proceeds supply about 75 percent of the building's value, which makes the exit rate the assumption to examine first.
The seller's version set alongside
Full occupancy, no capital outlay and a 6.0 percent exit lift the return from about 7.4 to 11.5 percent, a gap made entirely of assumptions.
Where marks go in FIN-432 Topic 4
A five-year projection with every unit let and nothing ever replaced is the first thing marked down, because no aging apartment building behaves that way. An exit capitalization rate set equal to or below the entry yield, with no argument for it, assumes the market will pay as much for an older building, and here the exit supplies most of the value. Capitalizing the sale on year-five income instead of the year ahead mismatches the income with the buyer. A one-time replacement deducted above net operating income distorts that year's income and any value capitalized from it. Papers that report an internal rate of return without saying how much of it comes from the sale hide the projection's dependence on one input. A projection with no sensitivity on the exit rate presents a single guess as the answer.
Get a FIN-432 Topic 4 example written to your instructions
Send the FIN-432 Topic 4 instructions and the rubric listed in your classroom, with the property figures or case your section assigns. We write a custom example to them, with assumptions gathered in one block, vacancy and capital spending in the projection, the sale priced on forward income and the exit rate tested, in 24 to 48 hours. The first one is free.
FIN-432 Topic 4 questions, answered
Why price the sale on the following year's income?
Because the buyer at the end of the hold is paying for income still to come, not income the seller has already collected. Capitalizing year-six net operating income at the exit rate matches the price with what the new owner will receive first. Using year-five income understates the reversion slightly and mismatches the rate, which was drawn from sales priced the same forward-looking way.
Why set the exit rate above the entry yield?
Because the building will be five years older at sale, with more wear and a shorter remaining life, and because no one can know where market rates will stand then. An exit rate somewhat above the entry yield is a common conservative convention. In the example, moving it from 6.5 to 7.0 percent cuts the return from about 7.4 to 6.1 percent, which shows how much rides on that one figure.
Can this projection tell me whether a property is a good buy?
No. The building, rents, growth rates and exit assumptions are illustrative, and a projection is only as sound as inputs that nobody can verify in advance. A real decision needs actual operating statements, inspections, local market evidence and financing terms, reviewed by qualified professionals. The example demonstrates the holding-period discipline FIN-432 marks and is not investment advice.