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Associates’ financial statements and Powhatan Associates’ marketing
and construction agreements, as follows:
Average interval sales price: $14,000
Expenses:
Sales/marketing 45.0
Cost of construction 25.0
Development fees 1.5
Reserves for amenities 1.5
Total 73.0
Net operating income per interval $3,780
($14,000 - (73% x 14,000 = $10,220))
On the basis of the assumptions that (1) as of February 1989,
20,003 intervals remained for sale, (2) 1,800 of the 20,003
intervals would be sold in year 1, 1,900 of the intervals would be
sold in each of the years 2-10, and 1,103 intervals would be sold
in year 11, and (3) the net operating income per interval would be
$3,780, Ms. Maiden calculated the income stream that could be
generated from the sale of Powhatan Plantation’s time-share
properties to be $75,611,340 for 1989 and $69,586,020 for 1990.
Ms. Maiden then considered the proper discount rate to be used
to bring the estimated future income stream to present value.
Ultimately, Ms. Maiden determined that a 25-percent discount rate
was appropriate, using “the band of investment” method, which is a
“synthesis of mortgage and equity * * * [yield] rates, which market
data discloses as applicable to comparable properties”. The method
selected is “a weighted average of rates of return by the lender
and equity investor”. In arriving at the 25-percent discount rate,
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