Reference no: EM133011706
Question - Your client, a real estate company, is evaluating a real estate project of $15,000,000 that will provide them with yearly NOI of $1,950,000 for the next 10 years and can then be resold for an amount estimated at $20,000,000. They can finance 75% of the purchase price through a 10-year mortgage with an amortization period of 25 years and an interest rate of 8%.
Your client will only proceed with the project if its returns are greater than his WACC or cost of equity. He provides you with the following information about his company:
Market value of equity = $50,000,000
Cost of equity = 20%
Market value of debt = $75,000,000
Cost of debt = 10%
Tax rate = 30%
Required -
a) Calculate the unlevered NPV of this investment.
b) Calculate the unlevered IRR of this investment.
c) Calculate the levered NPV.
d) Calculate the levered IRR of this investment.
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