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
Agency Mortgage-Backed Securities (AMBS) are securities that are backed by the mortgage loans. These securities include mortgage passthrough securities, stripped

which type of financing is appropriate to each firm


The Investment Decision: - Investment decision as well known as 'Capital Budgeting' is related to the selection of long-term assets or else projects in which investments will be m

Question 1: Give an account of the role of governmental bodies and officials in the making of public policies. Question 2: What do you understand by the term "Governmen

What are the disadvantages and advantages of Foreign direct investment (FDI) like opposed to a licensing agreement with a foreign partner? Answer:  The major advantage of FDI (

This is an individual assignment.  You are employed as a Trainee Accountant by Finners Accountants Ltd. The Finance Manager, Mr B Proudfoot has asked you to review details from

Determine the advantages of explicit cost Explicit cost of an interest bearing debt will be the discount rate which equates present value of the contractual future payments of

Discuss the process of bringing a new international bond issue to market. Answer:  A borrower desiring to increase funds by issuing Eurobonds to the investing public will conta

Modi Wires and Cable Ltd intends to finance its INR 20 million modernization plan for which it is trying to decide between debt and external equity. The management feels that the e