a. Using the information on the Excel sheet provided, Please thoroughly explain the steps on how to determine the expected levered-before-tax-annual rate of return on your capital. b. please determine the portion of the return that is expected from the annual cashflows and the portion that is expected as a result of property price appreciation.
a. Using the information on the Excel sheet provided, Please thoroughly explain the steps on how to determine the expected levered-before-tax-annual rate of return on your capital. b. please determine the portion of the return that is expected from the annual cashflows and the portion that is expected as a result of property price appreciation.
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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Question
a. Using the information on the Excel sheet provided, Please thoroughly explain the steps on how to determine the expected levered-before-tax-annual
b. please determine the portion of the return that is expected from the annual cashflows and the portion that is expected as a result of property price appreciation.
Transcribed Image Text:Inputs:
Acquisition Price
Expected 1st Year NOI
"Going in" CAP
$2,890,000 Down Payment
$149,991 Mortgage Rate
5.19% Maturity
CAP over (below) market
0.50% Levered Required Return
Required Rate of Return
8.50% Minimum Required DCR
Expected NOI Growth
3.50% Expected Treasury Yield
Terminal NOI Growth
2.90% Expected LT Inflation.
Acquisition Price + Closing Costs $2,962,250 Expected Risk Premium (bp)
End of year
0
1
2
3
4
5
6
7
8
Amortization schedule:
Total
I
NOI
0
1
$100,717
2 $98,206
3
$95,524
4
$92,660
5 $89,601
6
7
8
19
20
$149,991
$155,241
$160,674
$166,298
$172,118
$178,142
$184,377
$190,830
9 $75,140
10
$70,890
11 $66,350
I
$86,334
$82,845
$79,119
12 $61,503
$56,325
13
14 $50,796
15
$44,890
16
$38,583
17 $31,847
18 $24,653
$16,969
$8,764
$1,271,714
P
P
Acquisition/Disposition
($2,962,250)
$3,195,084
Outputs:
$1,481,125 Terminal CAP
6.80% Loan Amount
20 Mortgage Payment (Annual)
11.00% DCR
1.2 Mimimum DCR Satisfied?
4.30% Mortgage Balance at Sale
2.90%
400
CF
($2,962,250)
$149,991
$155,241
$160,674
$166,298
$172,118
$178,142
$184,377
$3,385,915
Total PV: $2,606,659
NPV: -$355,591
IRR: 6.45%
Ending balance
$1,481,125
$36,925 $1,444,200
$39,436 $1,404,763
$42,118 $1,362,645
$44,982 $1,317,663
$48,041 $1,269,622
$51,308 $1,218,315
$54,797 $1,163,518
$58,523 $1,104,995
$62,502 $1,042,493
$66,752 $975,741
$71,292 $904,449
$76,139
$828,310
$81,317
$746,993
$86,846 $660,146
$567,394
$92,752
$99,059 $468,335
$105,795 $362,540
$112,989 $249,551
$120,672 $128,878
$128,878
$0
I + P
$1,481,125 $2,752,839
PV of CF
($2,962,250)
$138,241
$131,870
$125,793
$119,996
$114,466
$109,191
$104,160
$1,762,942
5.900% Closing Fees
$1,481,125 Comission
$137,642 Closing Costs $
1.09 Selling Expense $
No
$1,104,995
DS
($137,642)
($137,642)
Levered CF
$ (1,481,125)
$12,349
$17,599
$23,032
$28,656
$34,476
$40,500
$46,735
($137,642)
($137,642)
($137,642)
($137,642)
($137,642)
($1,242,637) $2,143,277
Total PV: $1,055,775
($425,350)
6.17%
NPV:
IRR:
2.50%
4.00%
72,250
133,128
PV of Levered CF
($1,481,125)
$11,125
$14,284
$16,841
$18,876
$20,460
$21,653
$22,510
$930,025
down payment
max down payment
max levered price
max unlevered price
Pv of NOI (year 8)
Pv of NOI
pv of sale
R
51%
$1,055,775
$2,070,146
$2,606,659
$99,360
$943,077
$1,663,583
943.077/2606659
1663583/2606659
36%
64%
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