Assessment of Discounted Cash Flow Method in
Determining Intrinsic Value
Of an Investment in Tapang Realty Company
Garcia, Irish L.
Martin, John Alexis P.
Militar, Jane Hzel L.
Yares, Charlemagne Keith A.
F436
CHAPTER I: INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 RESEARCH PROBLEM
1.3 OBJECTIVES OF THE STUDY
1.4 SIGNIFICANCE OF STUDY
1.5 SCOPE AND LIMITATIONS
1.1 BACKGROUND OF THE STUDY
Money you received today is more
valuable in the future which affects
decision making in investment.
1.1 BACKGROUND OF THE STUDY
Investment is purchased to gain profit
in future or these are asset that will
not use today but it will gain wealth
in the future.
1.1 BACKGROUND OF THE STUDY
We pay and cost us money but it will
gain us something in the future.
There is always a risk in every
investment.
1.1 BACKGROUND OF THE STUDY
The Discounted Cash Flow method is
the most widely used tool of
evaluating an investment.
1.1 BACKGROUND OF THE STUDY
TAPANG REALTY COMPANY
which founded by Mr. Aurelio P. Tapang and
his son, Mr. Gerald Ildefonso N. Tapang
has been in real estate company for
almost 50 years.
1.2 RESEARCH PROBLEM
• Is discounted cash flow method
applicable to Tapang Realty
Company?
1.2 RESEARCH PROBLEM
• What is the discounted/ appraised
value of the investment in property
land treated as inventory for Tapang
Realty Company?
1.2 RESEARCH PROBLEM
• Which method is better be applied in
assessing the true value of
investment made by Tapang Realty
Company. Its existing valuation
method or the discounted cash flow
method?
1.3 OBJECTIVES OF THE STUDY
• To determine if the discounted cash
flow method applicable to Tapang
Realty Company.
1.3 OBJECTIVES OF THE STUDY
• To determine the discounted/
appraised value of the investment in
land properties treated as inventory
for Tapang Realty Company.
1.3 OBJECTIVES OF THE STUDY
• To know which method is better in
valuing an investment made by
Tapang Realty Company and will
reflect its true value.
1.4 SIGNIFICANCE OF THE STUDY
Choose the better valuation method
and apply it for its improvements.
1.4 SIGNIFICANCE OF THE STUDY
It will gain a deeper knowledge and
understanding about the Discounted
Cash flow Method.
1.4 SIGNIFICANCE OF THE STUDY
Other researcher can also try to
assess if it’s applicable to other type
of businesses.
1.5 SCOPE AND LIMITATIONS
This study dealt mainly with the
implication of the discounted cash
flow method on the valuation method
of Tapang Realty Company.
1.5 SCOPE AND LIMITATIONS
All information gathered belongs to
Tapang Realty Company thru
personal interview.
CHAPTER II: REVIEW OF RELATED
LITERATURE
2.1 TERMS, DEFINITIONS AND CONCEPTS
2.2 RELATED STUDIES
2.3 RESEARCH GAP
2.4. HOW WILL THE STUDY ADD VALUE?
2.1 TERMS, DEFINITIONS, AND CONCEPTS
MANAGERIAL FINANCE
CAPITAL BUDGETING
ACCOUNTING
PROFIT CRITERIA
AVERAGE RATE OF
RETURN
NET PRESENT
VALUE
CASH FLOW
CRITERIA
DISCOUNTED
CASH FLOW
PROFITABILITY
INDEX
PAYBACK
PERIOD
INTERNAL RATE
OF RETURN
ASSESSING THE INTRINSIC VALUE OF AN INVESTMENT
2.2 RELATED STUDIES
The Discounted Cash Flow Approach estimates
the future cash flows and discounts these
cash flows to estimate the property's value.
The money's true value is significantly influence
by the company's projected cash flows and
the discount interest rates.
2.3 RESEARCH GAP
Lack of financial data about investment.
Did not mention information pertaining on how
they decide on accepting the investments in
their company.
2.4 HOW WILL THE STUDY ADD VALUE?
The study adds value to the firm by providing a
better tool in assessing a project, whether to
accept or to reject it.
Improves the current decision making of the
company .
CHAPTER III: RESEARCH FRAMEWORK
3.1 CONCEPTUAL FRAMEWORK
3.1 CONCEPTUAL FRAMEWORK
INPUT
INPUT
• Interview on valuing property land
investment treated as inventory for
Tapang Realty Company
• Look for historical data with relevant
disclosure
3.1 CONCEPTUAL FRAMEWORK
PROCESS
PROCESS
• Ask permission for interview and conduct
interview.
• Assessment of the data and application of
the discounted cash flow
3.1 CONCEPTUAL FRAMEWORK
• Determine the existing valuation method that
OUTPUT the company is using currently
• We are able to know if discounted cash flow is
effectively in valuing property land
OUTPUT investment treated as inventory
• We are able to compare the existing company
OUTPUT valuation method with discounted cash flow method
CHAPTER IV: RESEARCH METHODOLOGY
4.1 RESEARCH DESIGN
4.2 SAMPLING & PARTICIPANTS
4.3 DATA GATHERING INSTRUMENTS
4.4 DATA COLLECTION PROCEDURES
4.5 DATA ANALYSIS
4.6 ETHICAL CONSIDERATIONS
4.1 RESEARCH DESIGN
The research is descriptive-exploratory.
The descriptive research is concerned with
delineating the way things are.
The purpose of the explanatory study is to
satisfy curiosity and provide a better
understanding to have a more and careful
study.
4.2 SAMPLING AND PARTICIPANTS
This study will do a face to face personal
interview with the head/manager of Tapang
Realty Company for valid information towards
one another.
4.3 DATA GATHERING INSTRUMENTS
Personal interview can be the most appropriate
way of collecting data.
Good results may be obtained from the
respondents if the approach is friendly,
courteous and unbiased.
4.4 DATA COLLECTION PROCEDURES
The researchers’ conduct a interview will comprise
both open and restricted kind of questions to
gather sufficient data needed for the assessment
of the discounted cash flow method.
4.4 DATA COLLECTION PROCEDURES
The researchers’ secondary source of data will be
from books, journals, ProQuest and articles
related to the Discounted Cash flow Method (DCF)
analysis.
4.4 DATA COLLECTION PROCEDURES
The researchers will also ask for the historical
costs of the investments in land treated as
inventory of Tapang Realty Company.
The results from there will be used to analyze
Tapang Realty Company results of operation
particularly in its investments.
4.5 DATA ANALYSIS
The researchers will need the historical costs of
the investments in land treated as inventory and
the related future cash flow expected from the
investment.
The researcher will also need the management’s
current decision criteria or its basis of accepting
or rejecting the investment.
4.5 DATA ANALYSIS
After gathering the needed information the
researchers will now apply the Discounted Cash
flow Method in assessing the investment that is by
the use of Net Present Value method, Profitability
Index and Internal Rate of Return.
4.5 DATA ANALYSIS
Discounted Cash Flow is computed by, which i is
the rate and n stands for the number of years.
FORMULA:
4.5 DATA ANALYSIS
The Net Present Value (NPV) method which is the
difference between a project’s value and its cost.
FORMULA:
PV OF CASHFLOWS – INITIAL OUTLAY
4.5 DATA ANALYSIS
Profitability Index (PI) or the ratio of the NPV to the
initial investment.
FORMULA:
PV OF CASHFLOW
INITIAL INVESTMENT
4.6 ETHICAL CONSIDERATIONS
The use of offensive, discriminatory, or other
unacceptable language needs to be avoided in
the conduction of the interview.
The privacy of the respondents is also important.
Any deception or exaggeration about the aims and
objective of the research must be avoided.
REFERENCES
•
•
•
•
•
•
•
•
•
•
A. Damodaran. “ The Dark Side of Valuation: Valuing Old Tech, New Tech and New
Economy Companies” 2001
A. Damodaran. “Valuation Approaches and Metrics: A Survey of the Theory and
Evidences.” 2005
Eva Kramna. “Key Input Factors for Discounted Cash Flow Valuation”.
K. A. Allman. “Corporate Valuation Modelling: A Step by Step Guide”. 2010
Kathleen D. Aldea. “Savannah Green Plains. Tapang Realty Company. Deca Homes
Residences and Resort”. http://tapangrealtycompany-kathleen.weebly.com
Mawih Kareem Al-Ani. “International Journal of Economics and Financial Issues”. A
Strategic Framework to Use Payback Period in Evaluating the Capital Budgeting in
Energy and Oil and Gas Sectors in Oman. 2015, 5(2), 469-475.
P. Kogler, T. Krabec. “Firms as a Bundle of Core Competencies: A Valuation Approaches
using the Dresdner Reference Model”. 2012
Priyadarshni. “Differennt Ways of Collecting Primary Data”
Vernimmen P., Quiry P., Le Fur Y., Dallocchio M., Salvi A.”Corporate Finance Theory and
Practice” 2005
Wiley. “Business Economics and Managerial Decision Making”. June 25, 2004.
APPENDIX A
HOLY ANGEL UNIVERSITY
Department of Accountancy
September 18, 2017
Dear Ma’am/ Sir:
The bearer of this letter are Fourth Year BS Accountancy students of Holy Angel University who are currently enrolled in their Accounting Research (XRESEARCH) for the First Semester, School Year 2017-2018 whom I
recommend to visit your company.
Some of their tasks will include data gathering for the general information regarding the company's profile, policies, processes and procedures through surveys, observation and interview. The results of the data will
remain confidential and will be used for academic purposes only.
They are looking forward to receive a favorable response from your good office, signifying that you are amendable to their request.
Should you have other questions, please let me know. Thank you very much.
Sincerely,
Mr. Arnold V. Salcedo
Accountancy Research Professor
Program Chairperson Accountancy Department
School of Business & Accountancy
Cell Phone: 0925.612.1261; 0926.727.7563
asalcedo@hau.edu.ph
BS Accountancy Students
Garcia, Irish
Martin, John Alexis P.
Militar, Jane Hzel L.
Yares, Charlemagne Keith A.
APPENDIX B
Q1: “What is your name po? What language do you prefer po?”
A1: “My name is Karen Pamintuan. I’m the Head Secretary of Tapang Realty
Company. Tagalong, English, kapampangan, okay lang.”
Q2: What method does you currently using in determining intrinsic value of
investment?
A2: “Wala kaming method na ginagamit. Nagiinvest lang bigla pero may
contract naman.”
Q3: “So kung wala po kayong ginagamit na method, gaano po kayo kasure na
magkakaroon kayo ng profit sa mga investments niyo po?”
A3: “May ibibigay akong hard copy sa inyo ng mga investments naming. Wait
lang”
Q4: Ma’am nasan po si Mr. Tapang,yung head po ng Company? Nabanggit po
kasi sa amin na wala sya ngayon dito sa Pilipinas
A4: Ah, nasa abroad na sya. If uuwi man sya hindi na sya nagpapakita sa
company pero siya pa din yung head.
APPENDIX C
INVESTMENT
RATE OF RETURN
YEARLY RETURN
OF INVESTMENT
ANNUAL RETURN
NET PRSENT
VALUE
100,000
15.60%
15,600.00
312,000.00
212,000.00
200,000
15.60%
31,200.00
624,000.00
424,000.00
300,000
15.60%
46,800.00
936,000.00
636,000.00
400,000
15.60%
62,400.00
1,248,000.00
848,000.00
500,000
15.60%
78,000.00
1,560,000.00
1,060,000.00
1,000,000
15.60%
156,000.00
3,120,000.00
2,120,000.00
1,500,000
15.60%
234,000.00
4,680,000.00
3,180,000.00
2,000,000
15.60%
312,000.00
6,240,000.00
4,240,000.00
2,500,000
15.60%
390,000.00
7,800,000.00
5,300,000.00
3,000,000
15.60%
468,000.00
9,360,000.00
6,360,000.00
INVESTMENT
RATE OF
RETURN
YEARLY
RETURN OF
INVESTMENT
ANNUAL
RETURN
NET PRSENT
VALUE
PROFITABILIT
Y INDEX
100,000
14.3980%
9,535.33
139,260.88
39,260.88
1.37
200,000
14.3980%
19,166
275,925
75,925
1.38
300,000
14.3980%
28,600
411,782.80
111,782
1.37
400,000
14.3980%
38,333.33
551,923.29
151,923.29
1.38
500,000
14.3980%
47,666.67
686,304.71
186,304.71
1.37
1,000,000
14.3980%
95,333.33
1,372,609.29
372,609.29
1.38
1,500,000
14.3980%
143,750
2,069,712.50
569,712.50
1.37
2,000,000
14.3980%
191,666
2,759,607.07
759,607.07
1.38
2,500,000
14.3980%
239,583
3,499,516.33
949,516.03
1.37