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You are an employee of University Consultants, Ltd., and have been given the following assignment. You are to present an investment analysis of a new small residential incomeproducing property for sale to a potential investor. The asking price for the property is $1,250,000; rents are estimated at $200,000 during the first year and are expected to grow at 3 percent per year thereafter.
Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A 70 percent loan can be obtained at 11 percent interest for 30 years. The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold.
a. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)?
b. What is the first-year debt coverage ratio?
c. What is the terminal capitalization rate?
d. What is the NPV using a 14 percent discount rate? What does this mean?
e. What is the profitability index using a 14 percent discount rate? What does this mean?
Kennebunk Manufacturing is expected to pay a dividend of $8 per share next year. The dividend growth rate is expected to continue to be 3%. Required rate of return is 7%. What should be the current market price per share?
The U.S. Army received two proposals for a turnkey design-build project for barracks for infantry unit soldiers in training. Proposal A involves an off-the-shelf “bare-bones” design and standard grade construction of walls, windows, doors, and other ..
A put option is currently worth $10. Just one second later, the stock price decreased by $5 to $45. The absolute value of the put option delta is 1/2. a. Approximately, what would the new put option be? b. using the original stock price of $50, and a..
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Table 3.5 presents a computer spreadsheet for estimating R&E Supplies external financing required for 2015. The text mentions that with modifications to the equations for equity and net sales, the forecast can easily be extended through 2016. Write t..
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A 30-year maturity bond making annual coupon payments with a coupon rate of 14.0% has duration of 10.04 years and convexity of 147.1. The bond currently sells at a yield to maturity of 10%. ind the price of the bond if its yield to maturity falls to ..
What price would the bonds sell for assuming investors do not expect them to be called? What price would the bonds sell for assuming investors expect them to be called at the end of 10 years?
Suppose that JML Corp. has outstanding debt, preferred stock, and common stock. For this year, the firm expects to have sales of $5,000 million, cost of goods sold of $3,500 million, operating expenses (including depreciation expenses) of $650 millio..
Capital budgeting implies that a company does not have unlimited funding capacities and that it is necessary to make a choices. The cost of capital also called “weighted average cost of capital” or WACC is definitely a means of budgeting. Discuss how..
The securities act of 1933 is primarily concerned with.
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