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Bob is considering acquiring a commercial property for $100,000. He expects the property will generate NOIs of $10,000 in year 1, $11,000 in year 2, $12,000 in year 3 and $12,500 in year 4. He wants you to do a three-year cash flow simulation. He expects the cap rate on the property in three years to be the same as the one at purchase. He is offered an $80,000 interest only 3-year participating mortgage with annual payments of 7% interest plus 50% kickers on any annual cash flow above $11,000 and property value at maturity above $100,000. Assume 39 years straight-line depreciation, income tax rate 30%, 15% capital gain tax, and 20% depreciation recapture tax rate. (a) What is the before tax property expected return? (b) What is the yield to maturity (YTM) on the loan assuming Bob will not default on the loan? (c) What is the before-tax and after-tax returns on Bob’s equity assuming he takes the loan? (d) The lender may be interested in offering a convertible mortgage with 7% interest payments rather than the participating mortgage. At the end of year three, the lender can choose to convert the mortgage into 70% of the property value, what is the before-tax and after tax IRR of Bob’s equity? What is the YTM of the convertible mortgage?
Scanlin, Inc., is considering a project that will result in initial after tax cash savings of $1.86 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. What is the maximum initial cost the c..
Which of the following investments in NOT a debt obligation of the issuer?
You are to make monthly deposits of $475 into a retirement account that pays 10.8 percent interest compounded monthly. Required: If your first deposit will be made one month from now, how large will your retirement account be in 33 years?
David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 11%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 11.18%. What is the com..
A Treasury bond that matures in 10 years has a yield of 6%. A10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?
After hearing the advice that it is usually best to buy life insurance from a person who has been in the business at least five years, a life insurance company general agent became upset and said rather vehemently, “How do you think we could recruit ..
1.the standard deviation variance and coefficient of variation of the daily returns for the portfolio must be
If you want to take out a 30 year, $250,000.00 mortgage at 5.5% with 2 points. calculate your monthly principal and interest payment?. what is the APR and EAR (actual/true/effective rate of interest) on the loan? Show work
Using the situation from SLP2, recall that you are deciding between two investments. However, they each require a different initial investment amount. Real estate development. This is a risky opportunity with the possibility of a high payoff, but als..
Identify a medium to large organization that is large enough to have departments (such as Human Resources, Finance & Accounting, Marketing, etc.). You will want to choose an organization for which you have some inside information as you are going to..
How much Tier 1 and Tiear 2 capital is required? How does this compare with the capital required under the Basel II standardized approach and under Basel I?
Formula of Interest expense EBIT divided by Interest expense but this does not seem correct -
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