Calculate using the five year average of median unit

Assignment Help Other Subject
Reference no: EM131489861

Investment Valuation MMP 742

Tasks

Using the following assumptions, determine if the property purchase is a sound investment decision.

Assumptions

Purchase Price: $630,000

Holding Period: 5 years

Loan to Value Ratio: 80%

Loan Term: 20 years

Interest Rate: Commonwealth Bank 5-year Principal and Interest Fixed Rate Loan

Acquisition and Financing Costs: Find using the Commonwealth Bank Upfront Cost Calculator

Vacancy and Collection: 5% of Gross Rent

Per Month Rent: Use a Gross Rental Yield of 3.2% to calculate Gross Rent in year 1

Rental Growth (annual): 3%

Annual Operating Expense (AOE): 20% of annual Gross Rent

AOE Growth: 2%

Depreciation Method: Straight Line

Value of Depreciable Assets: $45,000

Effective Life of Depreciable Assets: 10 years

Capital Works Cost: $265,000

Effective Life of Building: 40 years

Year Built: 2015

Annual Price Appreciation: Calculate using the 5 year average of Median Unit

Prices for 2-bedroom units in Mount Waverley (use data from realestate.com.au)

Part A
Prepare a discounted cash flow spreadsheet analysis reporting Net Present Value (NPV) and Internal Rate of Return (IRR) results for the potential investor who wants to purchase in her individual name. Assume the investor has sufficient cash to cover any cash shortfalls during the life of the investment. You can assume that if the property is purchased, it will be settled on 30th June 2017. Based on your results, should the investor purchase the investment property? Why or why not?

Part B
Partition the IRR and discuss your results. Conduct a sensitivity analysis utilizing two (only two) critical variables that might impact on Net Present Value. Explain the results and the key risks associated with this investment from your findings.

Part C

Now suppose that the investor is considering a longer investment horizon and suggests increasing the holding period from 5 years to 7 years. Please modify your discounted cash flow spreadsheet to calculate the Net Present Value (NPV) and Internal Rate of Return (IRR) results for a 7 year holding period (i.e. the property is sold at the end of year 7). Assume that she wishes to fix interest rates (Commonwealth bank have a 7-year fixed rate for investors) but all other assumptions remain unchanged. Comparing your results from Part A and Part C, would you advise her to invest for S or 7 years? Please justify your advice.

Verified Expert

This has been prepared in a spreadsheet and finally converted into a PDF document. It discusses about Property Valuation. It also conducts present value of cash flows and compares whether the deal is vial. IRR has been computed and sensitivity analysis has been done on couple of major parameters.

Reference no: EM131489861

Questions Cloud

How should healthcare providers balance legal risks : How should healthcare providers balance legal risks, experimental procedures, financial concerns, professional ethics
Discuss the presidential role in health policy : Discuss the Presidential role in health policy and discuss if you believe the President has overstepped his Executive power boundaries in reference to PPACA
Identify the characteristics of financial assets : Identifying Use a graphic organizer like the one below to identify the characteristics of financial assets.
Which types of financing did they discuss : Which types of financing did they discuss? What information or data did the article suggest a business owner use to help decide on the best financing decisions?
Calculate using the five year average of median unit : Discuss your results. Conduct a sensitivity analysis utilizing two (only two) critical variables that might impact on Net Present Value. Explain the results and the key risks associated with this investment from your findings.
Create a one to two paragraph email with seven sentences : Create a one to two paragraph email with five to seven sentences that follows your supervisor's instructions. Target the appropriate professional audience.
Why would someone be willing to invest in junk bonds : The BIG Idea Why would an investor want to choose a certificate of deposit over a corporate bond?
What do corporate bonds and municipal bonds have in common : Comparing and Contrasting What do corporate bonds, municipal bonds, and government savings bonds have in common? How do they differ?
Discuss the interests that might win or lose : Discuss the interests that might win or lose, depending on the outcome. What are their resources, and what is their likely position?

Reviews

inf1489861

6/2/2017 5:58:22 AM

Here is the assignment again Added is the Brief - 4 lines - property in Victoria Tax Rates Commonwealth bank upfront costs Here is the assignment again month 60 - repayment of loan $504,000 - this amount ?/ It should be less as we have paid off principal during the 5 years !!! To answer your question the answer is YES Point 5 (line 5) of the Assumptions says: Interest Rate - Commonwealth Bank 5 year Principal and Interest Fixed Loan If you google the above you get their 2 page pdf. It says 5.19% It will make a completely different answer Please fix ASAP Please send it to me in a bigger font and open in word so if I need to alter it or add to it I can. (eg add a list of References) Also send me the open excel spreadsheet Make the font bigger so I can read it the interest rate is fixed for 5 years and the loan is reduced by principal and interest (P & I) every month so after the 20 year term of the loan the outstanding balance would be $0.00. But the question only relates to 5 years of the loan (part C is 7 years) All are reduced by P & I Refer to the excel spreed sheet I sent you earlier today (one of the pages is titled "loan schedule")

Write a Review

 

Other Subject Questions & Answers

  Conduct adequate strategic information systems planning

Conside an organization that you believe doesn't conduct adequate strategic IS (information systems) planning. List at least 5 reasons why this type of planning is not done appropriately (or is not done at all).

  Differences between terrestrial and jovian planets

Which are the terrestrial planets? Why are they called "terrestrial? Which are the Jovian planets? Why are they given that name? Name three important differences between terrestrial and Jovian planets.

  What is important in chinese painting

What is important in Chinese painting? How would you compare the role of humanity in the Chinese painting tradition with that of the European paintings of the Renaissance

  Weaknesses of governmental-private social work

Discuss the strengths and weaknesses of both governmental and private social work organizations

  To achieve class and political solidarity

To achieve class and political solidarity, immigrant workers primarily had to overcome

  Character personality in the context of theory

Analyze how internal and external factors influence the character's personality in the context of your theory. These factors might include biological, societal, and cultural influences.

  Create art through painting and sculpting

David is a man who has always been driven to achieve a great deal at work and also to create art through painting and sculpting. According to Horney, David is driven to perform these behaviors as

  Dependent variable and confounding variable

A psychologist believes he has developed a new teaching method which will cause significantly greater learning to occur. To prove this he selects 2 college classes with professors A and B teaching the classes respectively. Professor A uses the new te..

  The selling price per unit decreasd

In response to a request from your immidiate supervisor, you have prepared a CVP graph portraying the cost and revenue characteristics of your company's product and operations. explain how the lines on the graph and the break-even point would change ..

  Provide situations where you feel women treated differently

Provide at least three situations where you feel women are treated differently in negotiations. You might want to use personal situation involving you or a significant other.

  Identify two or more barriers that were present

Include the following: Describe a situation from your life when you had trouble listening. Identify two or more barriers that were present. Explain how each barrier contributed to your inability to listen effectively

  Application on collective action for social movements

Application: Collective Action for Social Movements

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd