16634 Financial Analysis
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particular session, location and mode of offering is the authoritative source
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Subject handbook information prior to 2020 is available in the Archives.
Credit points: 6 cp
Result type: Grade and marks
Requisite(s): 16234 Property Valuation
Description
This is a core subject usually taken in Year 2 of the Bachelor of Property Economics. The subject relates to professional practice in terms of using the financial calculator to value leasehold and investment properties. The subject focuses on financial theory and its applications in the property industry. An understanding of financial concepts and their practical application is required in the analysis and valuation of cashflows as they pertain to property. The principal topics covered in this subject are: time value of money (TVM), capitalisation rates, nominal and effective rates of interest, dual rates, valuation of property on leasehold interest, and discounted cash flow analysis.
This subject involves students in the use of a financial calculator to assess the present value of future cash flows which are in perpetuity and for fixed terms using a variety of techniques which include time value of money formulas, discounted cash flow techniques and capitalisation methodologies. Prior to the class, students are able to engage with the lecturer through viewing an online video and by completing an online quiz on the operation and functionality of the financial calculator. During the lectures, student activities involve practicing questions similar to those that will be on the test/exam and self-assessing by comparing their answers with provided solutions.
Subject learning objectives (SLOs)
On successful completion of this subject, students should be able to:
| 1. | Differentiate between the various types of cashflows that require the use of dual rate factors, and be able to apply the appropriate dual rate formula, to calculate the value of the cashflow. Students will also be able to carry out validity checks to confirm the accuracy of their dual rate calculations. |
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| 2. | Explain the relationship between income, return and capital value as well as the reciprocal relationship between a capitalisation rate and a Years Purchase multiplier. Students will be able to apply capitalisation rates and years purchase to property cashflows to determine asset value or worth, and through research articles discuss the factors that affect the movement of capitalisation rates. |
| 3. | Evaluate the effect of time on the value of money; draw cash flow diagrams and use a financial calculator to determine time value of money solutions to property cashflows. |
| 4. | Apply DCF analysis and traditional valuation methodology in the context of various property scenarios. Students will be able to apply and calculation Net Present Value and Internal Rates of Return using a financial calculator and to carry out a proof of their results. |
| 5. | Calculate lessee and lessor interest in property and assess the worth if property affected by leasehold interest. Students will be able to analyse and apply initial, reversionary and equivalent yields as well as calculate effective rents when incentives have been included in lease agreements. |
| 6. | Calculate nominal and effective interest rate and apply them in various time value of money scenarios. |
Course intended learning outcomes (CILOs)
This subject also contributes to the following Course Intended Learning Outcomes:
- Apply valuation theory and practice in the valuation of property for different purposes (P.1)
- Apply financial principles to property economics issues (P.5)
- Engage in critical and reflective thinking in built environment contexts (R.1)
Contribution to the development of graduate attributes
The term CAPRI is used for the five Design, Architecture and Building faculty graduate attribute categories where:
C = communication and groupwork
A = attitudes and values
P = practical and professional
R = research and critique
I = innovation and creativity.
Course intended learning outcomes (CILOs) are linked to these categories using codes (e.g. C-1, A-3, P-4, etc.).
Teaching and learning strategies
This subject is delivered in weekly lecture mode. Students' learning experiences consist of attending lectures, group discussion, self-directed reading, and problem solving using a calculator. Active learning opportunities will be integrated with each section through group discussion, class workshops and in-class participation by students and student groups. Fundamental concepts of basic financial theory will be developed during the lectures. Working in small groups and doing class exercises will provide the opportunity for students to learn from each other and receive instantaneous feedback from the post-exercise discussion.
Content (topics)
The principal topics in this subject are:
- Evaluation and application of the capitalization formula,
- Time value of money calculations in relation to financial property scenarios,
- Dual rates in the assessment of terminable interests,
- Application of nominal and effective rates of interest,
- Valuation of property affected by leasehold interest,
- Valuation assessments which incorporate the use of Discounted Cash Flow analysis
Assessment
Assessment task 1: In-Class Activity
| Intent: | The purpose of this assessment is to help students to understand basic valuation and financial concepts and calculations which include capitalisation rates and time value of money. Groups of two students will work together to find solutions on the questions using IF AT card. | ||||||||||||
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| Objective(s): | This task addresses the following subject learning objectives: 2 and 3 This task also addresses the following course intended learning outcomes that are linked with a code to indicate one of the five CAPRI graduate attribute categories (e.g. C.1, A.3, P.4, etc.): P.1 and P.5 | ||||||||||||
| Type: | Quiz/test | ||||||||||||
| Groupwork: | Group, individually assessed | ||||||||||||
| Weight: | 20% | ||||||||||||
| Criteria: | Students are required to correctly answer and calculate the questions given. | ||||||||||||
| Criteria linkages: |
SLOs: subject learning objectives CILOs: course intended learning outcomes |
Assessment task 2: In-Class Test
| Intent: | The purpose of this assessment is to test students' understanding on basic financial theory and its applications in the property industry. This assessment involves students with dual rates, nominal and effective interest rates, and leasehold interests. | ||||||||||||||||
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| Objective(s): | This task addresses the following subject learning objectives: 1, 5 and 6 This task also addresses the following course intended learning outcomes that are linked with a code to indicate one of the five CAPRI graduate attribute categories (e.g. C.1, A.3, P.4, etc.): P.1 and P.5 | ||||||||||||||||
| Type: | Quiz/test | ||||||||||||||||
| Groupwork: | Individual | ||||||||||||||||
| Weight: | 30% | ||||||||||||||||
| Criteria: | Correctly answer and calculate the given questions. | ||||||||||||||||
| Criteria linkages: |
SLOs: subject learning objectives CILOs: course intended learning outcomes |
Assessment task 3: Formal Examination
| Intent: | This assessment is to test students' ability to solve real-world type problems related to valuing real properties applying learned valuation and financial concepts. This is a closed book exam which assesses all the learning topics undertaken during the course of this subject. Students are required to bring a calculator to the examination. | ||||||||||||||||||||||||||||
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| Objective(s): | This task addresses the following subject learning objectives: 1, 2, 3, 4, 5 and 6 This task also addresses the following course intended learning outcomes that are linked with a code to indicate one of the five CAPRI graduate attribute categories (e.g. C.1, A.3, P.4, etc.): P.1, P.5 and R.1 | ||||||||||||||||||||||||||||
| Type: | Examination | ||||||||||||||||||||||||||||
| Groupwork: | Individual | ||||||||||||||||||||||||||||
| Weight: | 50% | ||||||||||||||||||||||||||||
| Criteria: | Students are required to demonstrate their critical and reflective thinking skills and correctly apply valuation and financial theories in solving problems in the valuation of property. | ||||||||||||||||||||||||||||
| Criteria linkages: |
SLOs: subject learning objectives CILOs: course intended learning outcomes |
Minimum requirements
The DAB attendance policy requires students to attend no less than 80% of formal teaching sessions (lectures and tutorials) for each class they are enrolled in to remain eligible for assessment.
Required texts
The material being covered will be available in a reader/workbook which can be downloaded from the UTSOnLine.
Recommended texts
Australian Property Institute Valuation Principles and Practice Second Edition, Australian Institute of Valuers and Land Economists, Deakin ACT, 2007
Australian Property Institute, Property Journals Baum, A and Crosby, N Property Investment Appraisal, Second Edition, Routledge, London, 1995.
Brueggeman, W.B., & Fisher, J. Real Estate Finance and Investments (15th ed.), McGraw-Hill Education, 2016
Ibbett, N. Financial Mathematics for Decision Making, Cengage Learning: Australia, 2012
Knox, D and Zima, P. and Brown, R Mathematics of Finance Second Edition, McGraw-Hill Australia, 2006
Whipple, R.T.M, Property Valuation and Analysis, Law Book Company, 1995.
Wyatt, P, 2008, Property Valuation in an Economic Context, Blackwell Publishing: Carlton, VIC.