[Analysis] Calculating the true value of a building

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[Analysis] Calculating the true value of a building

Post by Guest » 22.06.2010, 02:18

How much is a building worth?

It's an important question. It's the question you ponder when you think about selling a building or when you see a potentially good deal on the buildings market or forum and you wonder are you going to benefit from this deal or are you going to get ripped off?

I have been thinking about this and using a simple method to gauge the value of a building I am finding that a lot of people seem to be getting ripped off, so by publishing my findings I am hoping to either 1. Find someone who reviews my method and finds a flaw in it's logic/calculation and/or 2. Help other people NOT get ripped off!

So to gauge the value of a building I believe the absolutely correct way to do it is basically to calculate how much profit a building would produce for you per day and then multiply that number by the number of days it would take for you to build and expand that building yourself to see if the cost to buy the building up front is greater or not.

Lets take the most simple example- a power station. Since it only has one output, which requires no inputs except a fixed amount of cash and it's output's value is subsidized by NPC market it is the best building to make a concrete value calculation on.

For this example, let's use a 5,000 m2 power station in Germany and your rank is Big Industrialist.

Therefore, this building produces 607,807.45 units of power per hour - each unit costs $0.03 to produce
Also, the amount of money you can sell each unit for on the open market is pretty much capped at $0.24. This is because the most anyone would pay for your power is $0.26 (which people usually do) since if you go any higher they'll just buy from the fixed NPC price of $0.27. And when you factor in the 10% market commission you go home with $0.24 per unit of power.

Using these figures we can determine that this power station can produce a revenue of $3,863,850.91 per day (607,807.45 * 24 * 0.24) at a cost of $482,981.36 (607,807.45 * 0.03). The difference amounts to $3,380,869.55 which is pure profit you make each day you manage to keep this guy pumping power for 24 hours.

Ok, so now we have a concrete figure of how much profit you'd get out of this building if you bought it right away and starting pumping power for sale on the marketplace.

But what if you wanted to build and expand this building yourself? How much would that cost and how many days would it take? This is even simpler to answer:
Cost of new 20m2 Power Plant in Germany = $237,500
For each m2 you wish to expand, you must pay $5,938 and supply 211units of stone, 106 units of steel, 22units of wood and wait 30 minutes (some of these figures depend on your rank).
And let's assume you are buying all these raw materials from the NPC ($26 Stone, $135 Steel, $75 Wood)
The end result is for 4,980 m2 expansion you end up paying $138,128,266 after you also hire the new employees and you would have waited a little over 104 days

Finally, if we take the profit this building would produce:
$3,380,869.55
Multiply it by the number of days it would have taken you to build/expand one yourself:
104 days
You get:
$351,610,432.99
Then if you add the setup cost for building it yourself:
$138,128,266.00
You end up with the magic figure of:
$489,738,698.99

This figure is the maximum you should ever consider paying for this building!

Simply because if you spent a penny more buying this building up front you would never make up for the fact that it took you longer to recover the costs of buying this building from someone else than it did if you had patiently built it yourself and waiting for it to expand.

Yet I see people paying a lot more for such buildings all the time!! It makes no sense....

Now when it comes to other buildings it can get a bit tricky - inputs vary in prices, outputs vary in prices (especially when you consider selling output to stores rather than market) and there are always contests to consider. But using this simple obvious method and using current stable market prices of goods you can get a good idea what a fair value of a building really is.

IF you found something wrong in my logic/math PLEASE let me know so I can update and learn because this is also a lesson for me. You know the saying about never knowing something well unless you can explain it to someone else!
[/u]

Guest

Post by Guest » 22.06.2010, 02:57

i say good luck finding maxed building for such price ... did you ever think of that someone who was expanding that building all that time, it did cost them that extra spot that they could be producing something else ... and yes all depence how wanted that building is... and instead of waiting that 100 days you get it right away ...
so the price is up how good are your negotiation skills ...
Last edited by Guest on 23.06.2010, 14:14, edited 1 time in total.

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Post by GoldenEye » 22.06.2010, 06:45

@ vorius: Nice work, really! :D I like your ideas. :)

May I add my limited point of view?

I wrote this some months ago when a player asked for an easy way to find an adequate building price. He also considered of an average price.
GoldenEye wrote:No, an average price would not be specified enough.
Large buildings have got higher prices per sqm than small ones.
The building prices depend on the size, the country they are located in, of course also on the kind of building, the amount of employees (and for stores also on the amount of advertisment) and also the usual market prices for comparable buildings.

You need to make sure that you also take those factors into consideration.

The best would be to evaluate expansion costs at your level, e. g. with the help of www.kapitools.de. Then calculate roughly how much profit you could have gained from the building in the time of construction and add this to the construction costs. And in a third step you should compare this sum to the market and change your price if necessary.
This is the only fair method that brings you the money your building is worth. :)
:arrow: Your calculations, vorius, are absolutely correct.
Yet you need to make one thing clear: In Kapilands not "money" is the limiting factor but the time. There will come a day (and it will not take too long ;) ) when you do not bother about every single Cap. You will have got "enough" for your daily businesses and can invest in buildings, status symbols, Coins... whatever you want.
But there is time - players do not want to wait when they have enough Caps. They usually want to play (and not to wait). Thus they buy expanded buildings and are willing to pay more than the entire building costs.

You will experience it someday that you will not seriously bother about a billion or two of Caps. ;)
Of course you should not start giving your money away, so keep trading and bargaining; but someday you will not be in need of paying 500 million Caps less or more. Decadence! :D
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"Walther PPK, 7.65 millimetre. Only three men I know use such a gun. I believe I've killed two of them."

:arrow: If you have got problems with your account or the game, please contact the upjers-support.

Guest

Post by Guest » 22.06.2010, 13:12

Again well done vorius for putting this into words. There are a few other explanations of this principle of this floating around some where and sometimes gets confusing but some how you are the first person (in my opinion) to make it simple

Yet i used to believe that this rule was law but soon realized it isn't but more a guideline , I will explain.

1. using this technique, a research center doesn't make any money but absorbs money, and so i should pay someone to buy my RC
2. Bigger buildings according to my numbers are worth less per m2, which makes sense
3. The big daddy of all economics, Supply Vs Demand. I noticed this in R1 were furniture stores trade at about 14billion per maxed store, which is startlingly high, but as so many people want it the price is ridiculous.

Goldeneye is of course right and it gets sometimes to a stage (marxer for example) were you have 100 buildings, thousands of coins a reasonable score, huge profits, buildings expanding at neck break speeds but has no thing to spend all his money on and buying things at prices that are ridiculous is okay. He could for example sell 10 car factories and waste 50Bn on becoming the biggest shampoo maker and not need to care.

Guest

Post by Guest » 22.06.2010, 14:47

I think people should send this type of stuff to KapiTimes instead of posting it on the forums immediately ;)

Stuff like this makes great special articles!

Guest

Post by Guest » 22.06.2010, 14:49

This was on my to do list. over the Summer I hope to write a few articles of good help profiles, working on steel question at the minute and hope to send it soon.

Guest

Post by Guest » 22.06.2010, 15:03

I like your posts. All previous posts show different aspects of ingame market and you all are right :)

1) you need to calculate your income and spendings for bigger profit,
2) you need to understand how important is time and limited slots,
3) and of course Supply/Demand thing,
4) just let me add small one - player goal. Is this maximum income, max ranking or dominate in any market sector? Example, I just spend about 400 coins worth cash for winning contest. That's just stupid thing from economical aspect. That's not good deal for ranking up, there is cheaper way. But I set goal for my self to win this contest and I managet it. 2 weeks of fun game play. Just need to found next goal now :wink:

So if anyone need to buy powerstation to reach ingame goal then price for powerstation can be very big.

Guest

Post by Guest » 22.06.2010, 15:41

Wow, thanks for all the nice responses! I didn't imagine anyone would be much interested in what I wrote...

Yeah I definitely agree with the counter points presented -

Time is a big factor and I am sure some people are paying more even though it's a losing deal just for the fact that they get to "play" with their new toy sooner rather than later :wink:

And it's really hard to find any such method to gauge price of Research Centers since they are just a cost with an indirect benefit as mentioned

And of course the delicate issue of supply/demand which is near impossible to try and forecast with solid numbers. Sometimes a huge demand arises for some particular sector and there are just no willing sellers to fulfill the supply and the price must go up

Thanks again for the excellent responses!

Guest

Post by Guest » 22.06.2010, 15:42

VerConMat Industries BV wrote:I think people should send this type of stuff to KapiTimes instead of posting it on the forums immediately ;)

Stuff like this makes great special articles!
I would be honored to be able to write some articles that can be added to the KapiTimes! Next analysis I work on I will submit to you for review.

Thanks!

Guest

Post by Guest » 22.06.2010, 20:45

We're always open to articles from our readers, especially if it's such an in-dept article like yours. :)
I will await your next analysis then. ;)

Guest

Post by Guest » 04.08.2010, 05:16

The easiest way to value an RC is the speed that it gives you research levels.

For instance, we do know that each product has a certain amount that each quality level will change the overall price.

For instance, if i produce 12 million gas per day, and i have no research, and sell the gas in my stores for 50 each, then i make 600 million for that day. If i add in a q90 research, and calculate that my selling price would be more like 100, then i would make 1.2 billion for that specific day. So, the research that i had was worth 600m to me that day.

Now, hold on to your hats, because this is where it gets tricky.

That is a good way to value the research itself. In a max RC, the research takes 176 days to complete to level 90, and it costs 838 million. Over the course of the 176 days, if it made a difference of 600m per day, the research itself would profit me 105,600,000,000 over the course of the 176 days. This is why q100 research goes for alot, because even though this is an extreme example, it's actually not out of the question.

The problem comes in when you value the Research center itself. What we can say is that on adverage, up to a q120 research, a max RC will research one level per 4.5 days. In my example of gas, this means that about every 2 weeks the gas would be 1 quality higher. If one quality is worth 1.5 in actual price in a retail store, and i am selling 12 million daily, the RC would be worth an additional 18 million per day after each set of 2 weeks.

Week 1 - 600m
Week 2 - 600m
Week 3 - 618m
Week 4 - 618m
Week 5 - 636m
Week 52 - 1050m

Ext ext.

So, since it takes about a year to expand the RC to max, we can say that over the course of that year it would gain this specific company the adverage of week 1 to week 52 - 600m in profit. On adverage, it would make a profit of 829.5 million per day over the course of it's first year of expansion. So, we take 829.5-600 and we get 229.5m left per day for a full year, that is the value of a max RC (83,767,500,000)

This assumes you are basically running a company with near max buildings though, and using your RC to it's full potential. You can make the calculations yourself for your own company to see what an RC is worth to you.

So, for a max gas producing/retailing company, the value of a max RC is about 84 billion. The problem with research is it is company specific. If you need help with what i was doing, send me an IGM, and i'll get back to ya.

Thanks,
APCE

Guest

Post by Guest » 05.08.2010, 06:09

Like someone else pointed out, the calculation becomes a bit more complicated when you take other buildings into consideration. They can produce more than 1 item, so which one should you choose for the 'profit' calc?

We could have this stickied/linked from the help thread in Beginners Questions if we had the second part of this calc.

Guest

Post by Guest » 09.10.2010, 15:07

nice workings, but that might be the value of a building, but not what to buy it for.

supply and demand is the biggest setters of price. if you desperately need something, and no one is selling, you will offer a higher price than if everyone has one.

also you have to think about time, how much would you value not having to wait a year to use the building? and in that time how much money could you have made in a different building.

also lets take your example, it takes 104days to expand it yourself. to make up the costs it would take 144days(your value/profit per day) . 104+144=248 days would be the cost of recovering the costs totally, from start of expansion to the day you made back all the money. but if you bought that power plant for maybe 600million, the recovery time would 177days (600million/profit per day) because you dont have to wait for the expansion. so i think i have found a flaw. another thing that hasnt been taken into consideration is in that time of expanding how much money could you have made in a different building?

Guest

Post by Guest » 09.10.2010, 17:12

David makes a good point about the value of a building SLOT.

If every player can have 60 (100) buildings, the true value of the building slot has to be the maximum profit a building can make, no matter what type of building it is.

About supply and demand. In concept, the supply and demand should not exceed what the building can make in profit. This is because a company that is doing the right calculations will not pay more than the building is "worth" (profit has to be more over the expanding time than the difference between the actual cost of the building (stones, steel, wood, FA), and the actual price of the building. Of course, you cannot assume that every person will charge the right price for a building, or buy a building for the right price.

As far as the time factor, that really gets into what i just got into. Of course i would rather have the building now, but if my company is actually looking to make maximum profit, then i would wait for a year. An economic prediction cannot predict human emotions, or what humans will do for the desire of something right away. Since we cannot try to predict that, all we can do is come up with the most accurate way to calculate the true value of a building - through what it can make in the time it takes to expand.

For the record, you always use the product YOU will be producing to come up with the profit. I tend to use the most profitable products though :D.

This should get sticked too, it's a lot of very good and accurate information.

APCE

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