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The asking price for a suburban office building is $5,000,000; rents are estimated at $550,000 during the first year and are expected to grow at 2 percent per year thereafter. Vacancies and collection losses are expected to be 6 percent of rents. Operating expenses will be 35 percent of effective gross income. A 65% LTV loan can be obtained at 7.5 percent interest for 10 years (assume payment and interest is calculated on an annual basis, and the loan is fully amortizing over a 30 year period). The property is expected to appreciate in value at 3 percent per year and the holding period is expected to be five years. Selling expenses are estimated at 7% of the sales price. Assume the appropriate income tax rate is 25%, the rate of depreciation recapture is 25%, and the capital gain tax rate is 15%. The value of the improvements is estimated at 60% of the purchase price by an appraiser. Answer the following questions
a) Calculate the effective gross income (EGI) and the net operating income (NOI) for each of the five years.
b) Calculate the total debt service, interest payment, and amortization in each of the five years?
c) Calculate the taxes due on the sale of the property.
d) Calculate the after-tax internal rate of return on this investment. If the investor’s (after-tax) opportunity cost of capital is 10%, should she go ahead with this investment?
Explain how capital reduces banking risks. Discuss the importance of cash flows and economic (market) value rather than accounting value.
Name a current advertising slogan you believe is particularly effective for developing a unique selling proposition. Explain the methods the company uses, the target market, and strategies that you think are effective in advertising this product. Ple..
River Cruises is allequityfinanced with 100,000 shares. It now proposes to issue $250,000 of debt at an interest rate of 10% and to use the proceeds to repurchase 25,000 shares. Suppose that the corporate tax rate is 35%. Calculate the dollar incre..
You have just purchased a new warehouse. To finance the purchase, you've arranged for a 30-year mortgage loan for 80 percent of the $2,300,000 purchase price. The monthly payment on this loan will be $15,000. What is the APR on this loan? What is the..
Using annual, semiannual, and quarterly compounding periods for each of the following, (1) calculate the future value if $5000 is deposited initially and (2) determine the effective annual rate.
Larry Smart has $10,000 which he can invest today. In addition to this amount, he can also invest $2,500 per year for thirty years (beginning one year from now) at which time he will retire. He plans on living for twenty years after he retires. If in..
Your firm purchases goods from its supplier on terms of 2.2/ 15, net 30. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 30? What is the effective annual cost to your firm if it choos..
Northern Pacific Heating and Cooling Inc. has a 6-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 50% with a $20 million investment in plant and machinery.
If a stock's return is normally distributed and has an average return of 11% and a standard deviation of 19.5%, what is the lower bound and the upper bound in returns where we would see 95% of the returns?
Western Bank & Trust purchased land and a building for the lump sum of $3,000,000. To get the maximum tax deduction, Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation would have been 70%..
Companies raise long-term funds or capital for new projects through which of the following markets? The federal reserve is the governmental organization responsible for______. An increase in the value of the dollar relative to all foreign currencies ..
Assume that General Electric (GE)’s current assets are $401 billion, fixed assets are $797 billion, current liabilities are $323 billion, and long-term liabilities are zero. Calculate GE’s translation exposure using current/non-current, monetary/non-..
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