Discounted Cash Flow Analysis

• Cash Flow: Revenue – Expenses

• Revenue: Income Generated
• Expenses: Cost Incurred
• Discounted Cash Flow: Present Value of
Future Cash In-flow
Factors Affecting Discounted Cash Flow

• Revenue/Income
• Expenses/Cost
• Escalation Rate
• Period: Time line of Project Completion.
• Discounting Rate:
 Revenue/Income
• Revenue Per Year
• Marketability of project each year
• Project Completion Status
• Collection Pattern
• Escalation in Market Rate
• Surrounding Development
• Government Rules & Regulations
 Expenses/Cost Incurred
• Cost Incurred Per year
• Project Completion Status
• Escalation in Construction Cost Per year
• Project Completion Status
• Brokerage charges, Development cost,
Legal & Administrative Cost Etc.
 Escalation Rate
• Percentage at which an annual change in the
price levels of the goods and services occurs
or is expected to occur.
• Inflation Rate
• Demand & Supply Equation
• Interest Rate
Period: Time line of Project Completion (n)

• Type of Project
• Time Required for Land Acquisition & Plan
Approval
• Government Rules & Regulations
 Discounting Factor (R)
• The discount factor is the factor by which a
future cash flow must be multiplied in order to
obtain the present value
• Generally, in real estate valuation it is taken as
developers profit percentage
• Formula:
Cash Inflow X 1
(1+ R)n
 Sensitivity Analysis
• What is Sensitivity Analysis
• A technique used to determine how  different
values of an independent variable will impact
a particular dependent variable under a given
set of assumptions.
• Factors Affecting The Value Estimated
 Factors
• Market Conditions
• Demand
• Supply Market Rate
• Cost of Construction
• Financing Cost (We do not Consider)
• Surrounding Developments
• Government Rules & Regulations