Real Estate Finance, Financial Management

1. Consider the following cash flows and reversion:

There is an $80,000 cash outflow at time zero. BTCFs for years 1-4, respectively, are $10,000, $20,000, $20,000, and $25,000. BTER for year 4 equals $50,000.

A) Calculate the NPV of equity if the required rate of return equals 10%.

B) Recalculate the NPV of equity if the required rate of return equals 15%.

C) Calculate the internal rate of return.

D) Should all investors accept this project?


2. Consider the following cash flows and reversion:

BTCFs for years 1-6, respectively, are $10,000, $10,500, $12,000, $11,000, $13,000, and $10,000. BTER for year 6 equals $140,000. What is the maximum that the investor can pay to earn a 15% rate of return?


3. Consider an apartment complex investment with a $500,000 purchase price. On a before-tax basis, should the investor buy the project? Why or why not?

A. First year’s gross rents = $500 per unit per month; there are 20 units
B. Vacancies and bad debts are expected to be 7% of PGI
C. First year’s operating expenses = $48,000
D. LTV ratio = 80% on a 10% mortgage for 25 years with monthly compounding
E. Depreciable basis = 85% of the purchase price
F. Future sale price = $550,000
G. Holding period = 60 months
H. Marginal tax rate = 28%; Capital gains rate = 15%
I. Require rate of return = 16%
J. Growth rates: Gross rents = 5% per year; Operating expenses = 5% per year
K. Financing costs = $16,000; Acquisition costs = $0
L. Prepayment penalty = 6%


Problem Set #3: The Refinance Decision

___________________________________________________________________________

Five years ago you originated a $50,000 mortgage loan at 12% for 30 years with monthly compounding. Because rates are currently 10%, you are considering refinancing the unpaid mortgage balance of your existing loan for 25 years with monthly compounding. Your current loan has a 2% prepayment penalty and the new lender will charge you $1,000 in refinancing costs. Assume your opportunity cost of capital equals 12%. Should you refinance if the new loan is held to maturity?
Posted Date: 10/29/2012 11:37:18 AM | Location : United States







Related Discussions:- Real Estate Finance, Assignment Help, Ask Question on Real Estate Finance, Get Answer, Expert's Help, Real Estate Finance Discussions

Write discussion on Real Estate Finance
Your posts are moderated
Related Questions
The credit term from the supplier is 2/30, net 60. Question: Calculate the effective annual rate if the firm does not take the discount.

What is the  Discount and Premium? Describe please.

Global Sector Indixes Morgan Stanley Capital International (MSCI) measures the International and National performance. It launched All Country Sectors on January 30, 2001. MSCI

Accounting and Financial Management 1. What is over capitalization? How do we know over capitalization has occurred? 2. Explain permanent and temporary working capital. 3

We can measure the convexity with the help of following formula:                                                                              ...Eq. (4) Where,          Δ

The cash flows from a portfolio of US standard mortgages have the characteristic of being uncertain. The cash flows from the mortgage consists of three comp

If a credit manager experience no bad debt losses over the past year. Would this be an indication of proper credit management? Why or why not

The annual report and accounts for Astra Zeneca plc and Epistem Holdings plc and other relevant financial information are available in the ‘TMA 02 Resources folder' in the Assessme

1. Describe the types of financial ratios and other financial performance measures that are used during a venture's successful life cycle. Who are the users of financial performan

Q. What are the Difficulties of Capital Budgeting? 1. Measurement Problems: - Identifying as well as measuring the costs and benefits of a capital expenditure proposals tend to