Mac Development Corporation - Hbs Case Study Essay

1441 Words Nov 30th, 2012 6 Pages
MAC Development Corporation The McCaffreys are in a sticky situation as they have tied up land for a development project and everything seems to be falling apart. They have deadlines to meet and so many moving pieces that I had to read the Case Study several times to wrap my head around it all. At the start of the Phoenix project, there were basically three main puzzle pieces the McCaffreys had to juggle. The first one was the Village of Woodland, where the land was located, had verbally agreed to give $4.1 Million in subsidies to the property for improving a community eyesore. This was a huge upside for the project initially, but the project and this $4.1 Million still had to be approved by the board to be official. It was not …show more content…
His comments at the end sound desperate and emotional rather than logical: “When you don’t have any money and you find yourself ensnared, it’s either win or go bankrupt. We often wonder, if we were wealthy people, would we have risked all that time and money? Sometimes it starts to feel like the only option is to move forward.” The project has an overall IRR of 47.7% under the given assumptions. And the investors may not know just how unsure these assumptions are. The odds that the project will go as planned and the cash flows are as projected are pretty close to zero in my view, especially with all that can go wrong. The total return is divided up into 3 classes of investors: A, B, and C. The A Class investors take on the least risk by taking a guaranteed return of 25%. They are the first to be paid from the cash flows, and once they are paid their 25% they are considered paid in full and withdrawn from the investment. Each group that allows their cash to be used as working capital gets a bonus return. After the bonus, class A receives an overall IRR of 30.63% return. Class B is guaranteed a return of 20% and splits some of the development risk with MAC Development by taking 32.4% of the future cash flows. After 12 years when the government tax refunds expire, the Class B investors make a 36.95% on their money. The third class of investment is Class C which is the McCaffreys. Their position is unique

Related Documents