4. An investor is considering the acquisition of a "distressed property" which is on Northlake Bank's REU list. The property is available for $200,000 and the investor estimates that he can borrow $160,000 at 8 percent interest and that the property will require the following total expenditures during the next year: Inspection %24 500 Title search 1,000 Renovation 13,000 Landscaping 800 Loan interest 12.800 Insurance 1,800 Property taxes 6,000 Selling expenses 8.000 a. The investor is wondering what such a property must sell for after one year in order to earn a 20 Page 2 percent return (IRR) on equity. What other issues must he consider?

4. An investor is considering the acquisition of a "distressed property" which is on Northlake Bank's REU list. The property is available for $200,000 and the investor estimates that he can borrow $160,000 at 8 percent interest and that the property will require the following total expenditures during the next year: Inspection %24 500 Title search 1,000 Renovation 13,000 Landscaping 800 Loan interest 12.800 Insurance 1,800 Property taxes 6,000 Selling expenses 8.000 a. The investor is wondering what such a property must sell for after one year in order to earn a 20 Page 2 percent return (IRR) on equity. What other issues must he consider?

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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MAIN PROJECT Texas University is considering investing in an online book ordering and information service, which will be managed by 2 employees. The following estimates relate to the costs of starting the service and the subsequent revenues from it. The initial investment needed to start the service, including the installation of additional phone lines and computer equipment, will be $1,000,000. These investments are expected to have a life of 4 years with 0 salvage value.The investments will be depreciated straight line over the four-year life.The revenues in the first year are expected to be $1500,000, growing 20% in year 2, and 10% in the two years following.The salaries and other benefits for the employees are estimated to be $150,000 in year 1, and grow 10% a year for the following three years.The cost of the books is assumed to be “0.60” of the revenues in each of the four years.The non-cash working capital, which includes the inventory of books needed for the service and the…
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Optimum Properties Corp. is considering the construction of a 50-unit condominium near the University Belt area. The 15-year investment study shows the following data: Disbursements Revenue Land P8 000 000.00 Land, after 15 yers P43 000 000.00 Building 25 000 000.00 Bldg, after 15 yers 8 600 000.00 Maintenance/yr 300 000.00 Rent/unit-yr 120 000.00 Insurance & Realty Tax/yr 1.2% With an estimated occupancy rate of 92% at all times, validate the acceptability of the project using the IRR method. The company applies a 15% MARR on its investments. (Ans. Project is acceptable, 15.7%)
The hotel you manage just purchased a new piece of property that is financed with a $250,000 amortized loan. If this loan is to be paid off in 4 equal, end-of-the-year annual payments and has an interest rate of 10.00%, how much of the third year's payment goes toward paying principal? (Ch. 5) Group of answer choices $48,884.94 $62,500.00 $78,867.70 $58,661.93 $65,179.92
broadband service company borrowed $ 2 mil lion for new equipment and repaid the loan in amounts of $ 200,000 in years 1 and 2 plus a lump sum amount of $ 2.2 million at the end of year 3 . What was the interest rate on the loan ? 6.17 A permanent endowment at the University of Alabama is to award scholarships to engineering students two times per year ( end of June and end of December ) . The first awards are to be made beginning 5-1 / 2 years after the $ 20 million lump sum donation is made . If the interest from the endowment is to fund 100 students each semester ( i.e. , twice a year ) in the amount of $ 5000 each semester , what semiannual rate of return must the endowment fund earn ? Identify three possible difficulties with rate of return analyses compared to PW , AW , or FW analyses .
According to the Building Residual Technique, the annual operating income of the building is $26,400. How much money should he be willing to pay when he wants to buy this building over its 30-year economic life, using the plot of land at $75,000 and an interest rate of 11%?
The purchase price for a new home was $325,000. The buyer put down 20% and the balance was a mortgage for 80% of the purchase price. value at the time of closing was $339,000 and the assessed value was $342,000. What will the buyer pay for one year's property taxes if the A. $8,125 B. $6,500 C. $8,550 D. $8,480
Caddis Company acquired a building with a loan that requires payments of $19,000 every six months for 3 years. The annual interest rate on the loan is 8%. What is the present value of the building? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Multiple Choice O O O O $99,600 $114,000 $38,988 $65,402 $48,965
A property was purchased for $7060.00 down and payments of $1451.00 at the end of every year for 3 years Interest is 5% per annum compounded semi-annually What was the purchase price of the property? How much is the cost of financing? CID Trent has opened an RRSP account by making an initial deposit of $1000 He intends to make annual deposits for 19 years increasing at a constant rate of 2% How much of the accumulated value just after the last deposit was made is interest if interest is 8 5% compounded annually? The amount of interest included in the accumulated value is $ (Round the final answer to the nearest cent as needed Round all intermediate values in six decimal nlaces as needed i Satwinder deposited $145 at the end of each month for fifteen years at 7 5% compounded monthly. After her last deposit she converted the balance into an ordinary annuity paying $1200 every three months for twelve years. If interest on the annuity is compounded semi-annually what is the nominal rate of…
Rachel Corporation purchased a building by paying $91,500 cash on the purchase date, agreeing to pay $50,300 every year for the next nine years and one payment of $101,500 ten years from the purchase date. The first payment is due one year after the purchase date. Rachel's incremental borrowing rate is 10%. (FV of $1, PV of $1, FVA of $1, and PVA of $1) The building reported on the balance sheet as of the purchase date is closest to: Note: Use the appropriate factor(s) from the tables provided.

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