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a. What will total fees be for Fund (A)? For Fund (B)? b. Would one of the fee structures cause the manager to want to hold the properties fonger before selling than the other fee structure? if so, which one?

a. What will total fees be for Fund (A)? For Fund (B)? b. Would one of the fee structures cause the manager to want to hold the properties fonger before selling than the other fee structure? if so, which one?

Essentials Of Investments
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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S Problem 23-1 An institutional investor is comparing management fees for two competing real estate investment funds. Both funds expect to begin operations and are accepting capital commitments. When the funds begin acquiring properties, capital calls will be made for capital contributions during the investment period. Fund A will charge a fee of 45 BP on capital committed and 60 BP on capital invested after the investment period ends. Fund B will charge a fee of 50 BP on capital committed and 55 BP on capital invested after the investment period ends. Both funds expect to have $508,500,000 in capital commitments when the fund commences operations and both project a five-year cycle for startup and acquisitions. Capital flows are expected as follows: Fund A Year 1 Year 2 Year 3 Year 4 Year 5 Fund B Year 11 Year 2 Year 3 Year 4 Year 5 Contributed Capital $ 203,400,000 305,100,000 Contributed Capital $ 305,100,000 203,400,000 Fund A Fund B Capital Returned 50 0 0 101,700,000 50,850,000 Capital Returned 50 0 0 50,850,000 101,700,000 Invested Capital $ 203,400,000 508,500,000 508,500,000 406,800,000 355,950,000 Invested Capital $ 305,100,000 508,500,000 508,500,000 457,650,000 355,950,000 Required: a. What will total fees be for Fund (A)? For Fund (B)? b. Would one of the fee structures cause the manager to want to hold the properties longer before selling than the other fee structure? if so, which one? Complete this question by entering your answers in the tabs below. Required A Required B What will total fees be for Fund (A)? For Fund (B)? Total Fees Required B >
Transcribed Image Text:S Problem 23-1 An institutional investor is comparing management fees for two competing real estate investment funds. Both funds expect to begin operations and are accepting capital commitments. When the funds begin acquiring properties, capital calls will be made for capital contributions during the investment period. Fund A will charge a fee of 45 BP on capital committed and 60 BP on capital invested after the investment period ends. Fund B will charge a fee of 50 BP on capital committed and 55 BP on capital invested after the investment period ends. Both funds expect to have $508,500,000 in capital commitments when the fund commences operations and both project a five-year cycle for startup and acquisitions. Capital flows are expected as follows: Fund A Year 1 Year 2 Year 3 Year 4 Year 5 Fund B Year 11 Year 2 Year 3 Year 4 Year 5 Contributed Capital $ 203,400,000 305,100,000 Contributed Capital $ 305,100,000 203,400,000 Fund A Fund B Capital Returned 50 0 0 101,700,000 50,850,000 Capital Returned 50 0 0 50,850,000 101,700,000 Invested Capital $ 203,400,000 508,500,000 508,500,000 406,800,000 355,950,000 Invested Capital $ 305,100,000 508,500,000 508,500,000 457,650,000 355,950,000 Required: a. What will total fees be for Fund (A)? For Fund (B)? b. Would one of the fee structures cause the manager to want to hold the properties longer before selling than the other fee structure? if so, which one? Complete this question by entering your answers in the tabs below. Required A Required B What will total fees be for Fund (A)? For Fund (B)? Total Fees Required B >
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