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Bob is considering acquiring a commercial property for $100,000. He expects the property will generate NOIs of $10,000 in year 1, $11,000 in year 2, $12,000 in year 3 and $12,500 in year 4. He wants you to do a three-year cash flow simulation. He expects the cap rate on the property in three years to be the same as the one at purchase. He is offered an $80,000 interest only 3-year participating mortgage with annual payments of 7% interest plus 50% kickers on any annual cash flow above $11,000 and property value at maturity above $100,000. Assume 39 years straight-line depreciation, income tax rate 30%, 15% capital gain tax, and 20% depreciation recapture tax rate. (a) What is the before tax property expected return? (b) What is the yield to maturity (YTM) on the loan assuming Bob will not default on the loan? (c) What is the before-tax and after-tax returns on Bob’s equity assuming he takes the loan? (d) The lender may be interested in offering a convertible mortgage with 7% interest payments rather than the participating mortgage. At the end of year three, the lender can choose to convert the mortgage into 70% of the property value, what is the before-tax and after tax IRR of Bob’s equity? What is the YTM of the convertible mortgage?
Tech Industries, a contract manufacturer of circuit boards, is evaluating an investment in a new production line to handle the growing demand from its customers, who produce consumer electronic products. Based on reasonable growth assumptions, the NP..
Many large corporations, such as General Motors, have written off large amounts of their nonperforming (or poorly performing) assets as they have shrunk their operations. What is the impact of these asset write-offs on the future return on assets, fu..
You are bullish on Telecom stock. The current market price is $40 per share, and you have $10,000 to invest. If the margin limit is 50% and you borrow the maximum from your broker at 4% interest, and invest everything in Telecom, what will your retur..
Suppose the dividends for the Seger Corporation over the past six years were $1.36, $1.44, $1.53, $1.61, $1.71, and $1.76, respectively. Compute the expected share price at the end of 2014 using the perpetual growth method. Assume the market risk pre..
Assume that you are attempting to fund a $50,000,000 liability associated with the clean-up of an environmental site that will be due in seven years. If you don't meet the liability you will be out of business.
Before finalizing these plans, two stores were remodeled as a test. Lisa Lee, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales gro..
Locate the Treasury issue in Figure 6.3 maturing in May 2030. Assume a par value of $1,000. What is its coupon rate? What was the previous day’s asked price in dollars?
A fast-growing firm recently paid a dividend of $0.55 per share. The dividend is expected to increase at a 10 percent rate for the next three years. Afterwards, a more stable 5 percent growth rate can be assumed. If a 6 percent discount rate is appro..
A universal life insurance policy (ULI) is considered to be
National Property Casualty has $9,500,000 in premiums on its auto insurance line. The line’s losses amount to $6,245,900, expenses are $2,906,430, and dividends are $189,650. The insurer earns $397,110 in the investment of its premiums. Calculate the..
Calculate the total number of shares to be acquired by CFR based on Adcock's market value of R70 per share and calculate the number of shares held by Bidvest Holdings in Adcock.
Against your advice, your little brother bought a Nolan Ryan rookie baseball card nine years ago for $250. Today the same card is selling for $2,700. What annual rate of return does this represent?
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