CONFIDENTIAL 1 AP/JUL2021/RES511

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : INVESTMENT APPRAISAL

COURSE CODE : RES511
DATE : JULY 2021
TIME : 4 HOURS (9.00 AM – 1.00 PM)

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of two (2) parts: PART A (2 Questions)

PART B (2 Questions)

2. Answer ALL questions from PART A and PART B in a separate Answer Script. Start each
answer on a new page.

3. Answer ALL questions in English.

4. Answer should be handwritten. Please save the submission in a PDF form.

5. Please submit the written Final Examination in the Google Classroom’s tray created by
your respective lecturers.

6. Plagiarism is strictly prohibited. Students will be held responsible for any plagiarism case in
accordance to the UiTM Academic Regulation [Amendment 2017].

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This online test paper consists of 5 printed pages
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 2 AP/JUL2021/RES511

PART A

QUESTION 1

a) An investor seeks your advice to determine the market value of a freehold interest of 5-
storey purpose-built office building located in a town centre. Currently, the property is
giving an annual rental of RM250,000.00 per annum with double net term since 9 years
ago. Based on other information provided by the investor, the property has been leased
for 30 years with reviews in every 10 years. The current market rental value is
RM320,000.00 per annum gross. The expected property yield is 9% per annum and the
rental growth is 1.5% per annum.

Value the interest by using the Net Present Value (NPV) method.
(17 marks)

b) Haji Alias is an investor who plans to acquire a leasing of a freehold interest of 10-storey
mixed office and retail building located in a city centre. The current lessee recently
offered him to purchase the interest at RM2.7 million. The property is under lease for a
term of 30 years with review in every 5 years since 16 years ago and giving net annual
profit rental as follow :

Term Profit Rental

(RM per annum)
1 150,000.00
2 200,000.00
3 250,000.00
4 300,000.00
5 350,000.00
6 400,000.00

The property yield for freeholder is 8.5% per annum. Determine the market value of
leasehold interest by using conventional investment method.

(8 marks)

QUESTION 2

A freehold interest of 10-storey mixed commercial building is recently offered for purchase at
RM7.25 million. The property could be leased at a market rental value of RM450,000.00 for
a term of 12 years subject to review in every 4 years. The expected rental growth is 1.25%
per annum and the capitalization rate is 6.25% per annum. A commercial bank in the vicinity
offered 80% loan from the purchasing price with an interest rate at 6.5% per annum. You are
required to advise him on the following matters :

a) Find the Fair Market Value by using the conventional investment method of valuation.

(5 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

CONFIDENTIAL 3 AP/JUL2021/RES511

b) Calculate Return on Capital Employed by using the Payback Method.

(9 marks)

c) Determine the Viability of investment option by using the Net Present Value and Internal
Rate of Return Approach.
(11 marks)

PART B

QUESTION 1

Kilauan Property Sdn. Bhd. is planning into a comprehensive property development project
that is to be implemented over a time span of 5 years. In order to maximize the profit, they
must choose an optimal sequence of mix between different types of property.

Kilauan Property Sdn. Bhd. has appointed a property consultant to carry out a feasibility
study and the economic experts have forecasted a 50% chance of high demand, 35%
chance of medium demand and a 15% chance of low demand.

An investment in commercial properties will generate a net profit of RM150 million if demand
is high or medium, but a loss of RM27 million if demand is low. If demand is high, residential
properties could be added to the investments, resulting in an additional profit of RM45
million.

An investment in residential properties would limit the net profit to RM8 million irrespective of
demand. However, if demand is medium, an additional investment in commercial properties
can be included, leading to an additional profit of RM25 million. If demand is high,
investment in commercial and leisure properties can be added and additional profit of RM30
million could be expected.

Alternatively, an investment in comprehensive mixed-use properties will generate an

estimated profit of RM250 million if demand is high. On the other hand, if demand is medium
the expected profit is RM155 million. If demand is low, a loss of RM50 million will be
expected. In a situation where demand is high, an investment in industrial properties could
also be added that may add RM65 million of net profit.

Each of the profit is already adjusted to its net present worth.

a) Construct a decision tree to represent the above scenario.

(8 marks)

b) Identify the best option if an optimistic and pessimistic approach is taken respectively.

(4 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

CONFIDENTIAL 4 AP/JUL2021/RES511

c) State the best option using the minimum regret approach.

(3 marks)

d) Calculate the Expected Monetary Value (EMV) and Expected Opportunity Loss (EOL)
and advice Kilauan Property Sdn. Bhd. on the best option to choose.
(10 marks)

QUESTION 2

On 1st October each year, Maju Portfolio Investment Sdn. Bhd. begins the task of preparing
the end of the year portfolio management exercise. The various activities in the exercise
have been identified as follows:

Activity Activity Description Duration to Immediate

Reference Complete Preceding
(Weeks) Activity
A Specify and quantify investor’s objectives, 3 -
constraints and preferences
B Allocate asset and optimize portfolio 6 A
C Monitor economic input factors 4 A
D Monitor market input factors 10 B,C
E Decide portfolio policies and strategies 5 D
F Revise portfolio 10 D
G Monitor investor-related input factors 1 E,F
H Construct portfolio 5 E
I Consider relevant economic, social, political 8 E
issues and security
J Select security 15 G,H,I
K Attain investor’s objectives 5 J
L Measure performance 2 J
M Refine performance 10 K
N Review performance 2 L,M

You are required to establish the following :-

a) Develop the network model to represent the logical sequence of activities and how long it
will take before a decision can be made on the portfolio management exercise.

(10 marks)

b) Find the float available for each of the non-critical activities.

(8 marks)

c) If it is necessary to reduce the time taken to complete the whole exercise, please identify
which stages should be considered. Explain why?
(3 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

CONFIDENTIAL 5 AP/JUL2021/RES511

d) If the activity of constructing portfolio could be implemented in only four weeks, state the
effect this would have on the total duration of the study?
(4 marks)

END OF QUESTION PAPER

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL