2. An office building has the following investment characteristics: Year 1 NOI $2,100,000 $2,200,000 $2,300,000 $2,400,000 Year 2 NOI Year 3 NOI Year 4 NOI Initial (going in) cap rate Loan Principal 7% $18,000,000 Interest rate 5% Amortization 30 years Exit cap rate Holding period 8% 3 years Solve for each of the following: Purchase price Loan to value ratio Annual debt service Debt service coverage ratio for year 1 Loan balance at the end of year 3 Equity IRR

2. An office building has the following investment characteristics: Year 1 NOI $2,100,000 $2,200,000 $2,300,000 $2,400,000 Year 2 NOI Year 3 NOI Year 4 NOI Initial (going in) cap rate Loan Principal 7% $18,000,000 Interest rate 5% Amortization 30 years Exit cap rate Holding period 8% 3 years Solve for each of the following: Purchase price Loan to value ratio Annual debt service Debt service coverage ratio for year 1 Loan balance at the end of year 3 Equity IRR

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Internal rate of return A project is estimated to cost $402,360 and provide annual net cash flows of $120,000 for 5 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.909 0.893 0.870 0.833 1.736 1.690 1.626 1.528 2.487 2.402 2.283 2.106 3.170 3.037 2.855 2.589 3.791 3.605 3.353 2.991 4.355 4.111 3.785 3.326 4.868) 4.564 4.160 3.605 8 5.335 4.968 4.487 3.837 9 5.759 5.328 4.772 4.031 10 6.145 5.650 5.019 4.192 Determine the internal rate of return for this project, using the Present Value of an Annuity of $1 at Compound Interest table shown) above. 1 2 3 4 5 6 7 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 802 7.360 12 X %
Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $1,400,000. The manager believes that the new investment will result in direct labor savings of $350,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. What is the payback period on this project?4 years b. What is the net present value, assuming a 10% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value…
Book Show Me How E Print Item Internal Rate of Return A project is estimated to cost $507,840 and provide annual net cash flows of $69,000 for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.353 2.991 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 6.210 5.335 4.968 4.487 3.837 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 of return for this proj using the Present Value of an Annuity of $1 at Compound Interest table shown above. Determine the internal Previous Check My Work 3 more Check My Work uses remaining. Email Instructor Save and Exit Submit Assignmen All work saved. DD F11 F10 80 888 F9 F8 F6 F4 & # $ %3D 4 5 6 7 8 9 3 P E R Y U G H JK
Compute the payback statistic for Project A if the appropriate cost of capital is 7 percent and the maximum allowable payback period is four years. (Round your answer to 2 decimal places.) Project A Time: 0 1 2 3 4 5 Cash flow: −$1,400 $510 $600 $600 $380 $180 Payback years: _______.__
The following information regarding an investment project is available. Initial investment is £125,000 Scrap Value £10,000 at the end of 5 years Year Inflow 1 £60,000 2 £50,000 3 £10,000 4 £10,000 5 £50,000 A). What is the ARR using the Average Investment formula? Choose one from the following: A. 15% B. 17% C. 19% D. 21%
Use the following table, Present Value of an Annuity of 1 Period 8% 9% 10% 1.926.917 .909 2 1.783 1.759 1.736 3 2.577 2.531 2.487 A company has a minimum required rate of return of 9%. It is considering investing in a project which costs $350,000 and is expected to generate cash inflows of $140,000 at the end of each year for three years. The net present value of this project is ? $354,340. $4,340. $70,000. $35,436.
A2
Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $260,000. The manager believes that the new investment will result in direct labor savings of $52,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 15% 1 0.943 1.833 2.673 3.465 2 3 4 5 6 7 8 9 4.212 4.917 5.582 6.210 6.802 7.360 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 10 a. What is the payback period on this project? 5 ✔ years 5.019 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value $582,104 X c. What else should the manager…
Problem 6. Including loan The following investment alternatives are being evaluated. Assuming that there is only $30,000 available and the surplus will be acquired through a loan at 5.5% annual effective interest payable in annual payments over 4 years. Determine which alternative should be selected. Perform the analysis using the Present Value, Equivalent Annuity and IRR Methods. Use a MARR = 7% Year A B 0 -25000 -46000 1 7460 16640 2 7460 16640 3 7460 16640 4 6500 12600 5 6000 10600
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4. Develop ATCF table for Problem 3, if 50% of the initial investment is borrowed at 5% interest rate per year to be paid back in 4 equal installments. (No need to calculate PW) 3. An investment of $500,000 generates an annual income of$150,000 over the next4 years with a salvage value of$200,000. At MARR-10% is this a good investment (by computing P.W. factor)? The effective tax rate is 40% and MACRS depreciation with depreciation life of 3 years is employed.

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