User Account

All Pages

You are considering the purchase of an apartment complex

Assignment Help Finance Basics
Reference no: EM13484705

You are considering the purchase of an apartment complex. The following assumptions are made:

· The purchase price is $1,000,000.

· Potential gross income (PGI) for the first year of operations is projected to be $171,000.

PGI is expected to increase at 4 percent per year.

· No vacancies are expected.

· Operating expenses are estimated at 35 percent of effective gross income. Ignore capital expenditures.

· The market value of the investment is expected to increase 4 percent per year.

· Selling expenses will be 4 percent.

· The holding period is 4 years.

· The appropriate unlevered rate of return to discount projected NOIs and the projected NSP is 12 percent.

· The required levered rate of return is 14 percent.

· 70 percent of the acquisition price can be borrowed with a 30-year, monthly payment mortgage.

· The annual interest rate on the mortgage will be 8.0 percent.

· Financing costs will equal 2 percent of the loan amount.

· There are no prepayment penalties.

a. Calculate net operating income (NOI) for each of the four years.

b. Calculate the net sale proceeds from the sale of the property.

c. Calculate the net present value of this investment, assuming no mortgage debt. Should you purchase? Why?

d. Calculate the internal rate of return of this investment, assuming no debt. Should you purchase? Why?

e. Calculate the monthly mortgage payment. What is the total per year?

f. Calculate the loan balance at the end of years 1, 2, 3, and 4. (Note: the unpaid mortgage balance at any time is equal to the present value of the remaining payments, discounted at the contract rate of interest.)

g. Calculate the amount of principal reduction achieved during each of the four years.

h. Calculate the total interest paid during each of the four years. (Note: Remember that debt service equals principal plus interest.)

i. Calculate the levered required initial equity investment.

j. Calculate the before-tax cash flow (BTCF) for each of the four years.

k. Calculate the before-tax equity reversion (BTER) from the sale of the property.

l. Calculate the levered net present value of this investment. Should you purchase? Why?

m. Calculate the levered internal rate of return of this investment (assuming no debt and no taxes). Should you purchase? Why?

n. Calculate, for the first year of operations, the: (1) overall (cap) rate of return, (2) equity dividend rate, (3) gross income multiplier, (4) debt coverage ratio.

Reference no: EM13484705

Questions Cloud

On january 1 2007 charles jamison borrows 40000 from his : on january 1 2007 charles jamison borrows 40000 from his father to open a business. the son is the beneficiary of a
Mr farrow is familiar with your reputation for brilliant : steven farrow is considering opening a franchise liquor store next to a new retail shopping center based on historical
List at least five ways that a developer may attempt to : list at least five ways that a developer may attempt to reduce the risks of the permitting
Why is the permitting stage of development often the : why is the permitting stage of development often the riskiest stage of the
You are considering the purchase of an apartment complex : you are considering the purchase of an apartment complex. the following assumptions are mademiddot the purchase price
On june 30 heckle signed a bank loan for euro400000 : heckle group began operations as an engineering consulting firm on june 1. 2008. on that date it issued 100000 shares
Nbc company purchased a patent from abc for 144000 at the : 1.a capital expenditure would appear on thea.income statement under operating expenses.b.balance sheet under fixed
The before-tax cash flow from the sale of the property is : you are considering the acquisition of an office building. the purchase price is 775000. seventy-five percent of the
If the before-tax equity reversion after four years equals : with a purchase price of 350000 a warehouse provides for an initial before-tax cash flow of 30000 which grows by 6

Reviews

Write a Review

Finance Basics Questions & Answers

  Describe sox requirements

Describe SOX requirements

  What is the cash price of the car

Under the terms of her finance agreement she is required to make payments of $210/month for 60 months. What is the cash price of the car? (Round your answer to the nearest cent.)

  Calculate after-tax cost of debt financing

Last year Wei Guan corporation had $350 million of sales, and it had $270 million of fixed assets that were used at 65 percent of capacity. In millions, by how much could Wei Guan's sales raise.

  Which organization forms give their owners limited liability

You are a shareholder in a C corporation. The corporation earns $2 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 40% and the personal tax rate on (both divid..

  How much are estimated monthly variable costs

How much are estimated monthly variable costs using the high-low method?

  What is the annual coupon amount

The ABC Co. has $1,000 face value stock outstanding with a market price of $1,112.9. The stock pays interest annually, matures in 14 years, and has a yield to maturity of 6 percent. What is the annual coupon amount?

  You purchased 1300 shares of lkl stock 5 years ago and have

you purchased 1300 shares of lkl stock 5 years ago and have earned annual returns of 7.1 percent 11.2 percent 3.6

  What was the return on the higher bond

Corresponding figures for france were 1.8% and 2.6%. Which bond earned the higher us dollar return? what was the return on the higher bond?

  In a paper 850-1250words compare and contrast the major

1 in a paper 850-1250words compare and contrast the major elements of the reports by coyne et al. and messina et al.2

  What growth rate is expected for the companys stock price

The stock price of Russell, Inc. is $81. Investors require a 14 percent rate of return on similar stocks. If the company plans to pay a dividend of $4.20 next year, what growth rate is expected for the company's stock price?

  What is the probability that in the next sample

At any given moment, the pipeline managers estimate that 1.5% of the seams will need repair. What is the probability that in the next sample of 25 seams, 2 or fewer of the seams will need repair?

  Do these projects contradict the goal of maximization

Firms often involve themselves in projects that do not result directly in profits. For example, IBM and ExxonMobil frequently support public television broadcasts. Do these projects contradict the goal of maximization of shareholder wealth?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd