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You have been hired by an investor to evaluate for investment purposes a mixed-use building. The investor is looking for a market value estimate of the building. There are 20 apartment units all with 2 bedrooms and 1 bathroom and have 1000 sq ft. The apartment units rent for $1200 per month. The 8 retail units on the first floor are 2500 sq ft each and rent for $3500 per month. All of the contracts have expiration dates ranging from January 2017 through July 2018. In addition all of the units are currently occupied in both the apartment space and the retail space. The NOI for the entire property is $30,000 per month. The GRM, GIM, and NIM for the area is estimated at 80, 7, and 12 respectively. Similar buildings in the area have recently sold for between $3M and $5M, however they are much newer than your building which has an effective date of 1987 and has an estimated useful life of 50 years. The land that the building is constructed on is valued at $1M. There are currently 7 windows that need to be replaced (each valued at $1200). There is a furnace upgrade that needs be completed as one of five furnaces is down (each valued at $30,000). The roof has leak and already has two layers of shingles and tar (replacement would cost $75,000). Evaluate the market value of the building.
It is frequently stated that the one purpose of the pre-emptive right is to allow individuals to maintain their proportionate share of the ownership and control of a corporation. How important do you suppose control is for the average stockholder of ..
“Although options are risky investments, they are valued by virtue of their ability to convert the underlying asset into a synthetic risk-free security.” Explain what this statement means, being sure to describe the basic three-step process for valui..
A project has the following estimated data: price = $79 per unit; variable costs = $46.61 per unit; fixed costs = $5,600; required return = 12 percent; initial investment = $6,000; life = six years. Ignore the effect of taxes. What is the cash break-..
It is June and a fund manager has a portfolio worth $20 million with a beta of 1.4. The manager is concerned about the performance of his stocks in August (2 months from now) and plans to use September futures contracts on the S&P 500 to hedge the ri..
All else equal, 20-year T-bonds have less price risk than 5-year T-bonds. All else equal, bonds with 5% coupon rate have more reinvestment rate risk than bonds with 10% coupon rate. All else equal, bonds with 5% coupon rate have less price risk than ..
Suppose you want to hedge a $510 million bond portfolio with a duration of 3.5 years using 10-year Treasury note futures with a duration of 5 years, a futures price of 106, and 6 months to expiration. The multiplier on Treasury note futures is $100,0..
Which of the following values will be equal to zero when a firm is operating at the accounting break-even level of output?
A stock price is $100 and can go up or down $10 in one month. The risk-free interest rate is 5% and no dividends are scheduled. What is your annualized expected return and risk if you invest in the stock? Is your answer consistent with portfolio theo..
Potter Industries has a bond issue outstanding with an annual coupon of 6% and a 10-year maturity. The par value of the bond is $1,000. If the going annual interest rate is 8.8%, what is the value of the bond? Round your answer to the nearest cent. D..
The most effective form of business organization for raising capital is the:
Jackson Inc. is evaluating two independent investments. Project S costs $150,000 and has an IRR equal to 12 percent, and Project L costs $140,000 and has an IRR equal to 10 percent. Jackson's capital structure consists of 20 percent debt and 80 perce..
Lycan, Inc., has 8.4 percent coupon bonds on the market that have 6 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the YTM on these bonds is 10.4 percent, what is the current bond price?
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