Private Equity Real Situation?

Question

This is not school homework but an interesting situation I came across.

1) John bought income property A in London in 2005 for 100 pounds,
2) Dave bought income property B in Liverpool in 2006 for 60 pounds, inflation was 10% up from previous year

John & Dave became mutually partners on the AB = A+B pie. What % each does own of the pie?

Next,

3) Larry bought income property C in Manchester in 2007 for 75 pounds, inflation was up 5% from previous year.

NOW, the 3 want to become mutually partners where the pie now is ABC A+B+C. What % each should have?

Looking for expert answer!

Mike

Ronald Raygun · Accepted Answer

What do you mean? A situation is real life? What property can you buy in London for 100 pounds which is going to yield 20 pounds a year?

OK, so you are saying that property A was worth 110 pounds in 2006.

OK, so you are saying that in 2006, the two properties together were worth 170 pounds.

That's an impossible question to answer, because there are at least three different ways in which the properties can be valued. One way is by how much they can be expected to sell for. That's 110 and 60 pounds, so the percentages would be 64.7 and 35.3. Another way is by their income generating capacity. If that's still 20 and 15 pounds per year, then the percentages will be 57.1 and 42.9. Yet another is by their capacity for accumulating capital gain.

All of these need to be taken into account when John and Dave sit down to negotiate and decide what they're going to do.

Different numbers, but same answer.

PeterSaxton · Answer

It may not be school homework but I wouldn't be surprised if it's university homework given the present standards of the people begging for jobs.

maasultan · Answer

It is neither, I swear! I thought such thing might have formal formulation in math or finance?

Private Equity Real Situation?

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