Please correct answer and don't used hand raiting An investor is considering the purchase of a small office building. The NOI is expected to be the following:Year 1, $222,000; Year 2, $232,000; Year 3, $242,000; Year 4, $252,000; Year 5, $262,000. The property willbe sold at the end of year 5 and the investor believes that the property value should have appreciated at arate of 3 percent per year during the five-year period. The investor plans to pay all cash for the propertyand wants to earn a 10 percent return on investment (IRR) compounded annually.Required:a. What should be the present value of the property today?b. What should be the property value (REV) at the end of year 5 in order for the investor to earn the 10%IRR?c. Based on your answer in (b), if the building could be reproduced for $2,520,000 today, what would bethe underlying value of the land? SHOW HOW TO DO IT IN EXCEL.WITH FORMULAS

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Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 10PA: The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000,...

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An investor is considering the purchase of a small office building. The NOI is expected to be the following: year 1, $200,000; year 2, $210,000; year 3, $220,000; year 4, $230,000; year 5, $240,000. The property will be sold at the end of year 5 and the investor believes that the property value should have appreciated at a rate of 3 percent per year during the five-year period. The investor plans to pay all cash for the property and wants to earn a 10 percent return on investment (IRR) compounded annually. a. What should be the property value (REV) at the end of year 5 in order for the investor to earn the 10% IRR? b. What should be the present value of the property today? c. Based on your answer in (b), if the building could be reproduced for $2,300,000 today, what would be the underlying value of the land? O $3,420,843; $2,950,850; $650,850 O $3,528,887; $2,590,850; $725.250 O $3,720.786; $2,476,180; $665.450
An Investor is considering the purchase of a small office building. The NO/is expected to be the following: Year 1. $234,000; Year 2 $244,000; Year 3. $254,000; Year 4, $264,000; Year 5, $274,000. The property will be sold at the end of year 5 and the Investor believes that the property value should have appreciated at a rate of 3 percent per year during the five-year period. The Investor plans to pay all cash for the property and wants to earn a 10 percent return on investment (IRR) compounded annually. Required: a. What should be the present value of the property today? b. What should be the property value (REV) at the end of year 5 In order for the Investor to earn the 10% IRR? c. Based on your answer in (b). If the building could be reproduced for $2,640,000 today, what would be the underlying value of the land? Complete this question by entering your answers in the tabs below. Required A Required B Required C What should be the present value of the property today? Note: Do not…
An investor is considering the acquisition of a "distressed property" which is on Northlake Bank's REO list. The property is available for $200,800 and the investor estimates that he can borrow $160,000 at 4.5 percent interest and that the property will require the following total expenditures during the next year: Inspection Title search Renovation Landscaping Loan interest Insurance Property taxes Selling expenses Required: a. The investor is wondering what such a property must sell for after one year in order to earn a 20 percent return (IRR) on equity. b. The lender is now concerned that if the property does not sell, investor may have to carry the property for one additional year. He believes that he could rent it (starting in year 2) and realize a net cash flow before debt service of $1,440 per month. However, he would have to make an additional $7,440 in interest payments on his loan during that time, and then sell. What would the price have to be at the end of year 2 in order…
Barbara Thompson is considering the purchase of a piece of business rental property containing stores and offices at a cost of $350,000. Barbara estimates that annual receipts from rentals will be $55,000 and that annual disbursement. other than income taxes will be about $18,000. The property is expected to appreciate at the annual rate of 5%. Barbara expects to retain the property for 20 years once it is acquired. Then it will be depreciated on the basis of the 39-year real-property class (MACRS), assuming that the property would be placed in service on January 1.Barbara's marginal tax rate is 30%, and her MARR is 10%. What would be the minimum annual total of rental receipts that would make the investment break-even'?
A client has requested advice on a potential investment opportunity involving an income-producing property. She would like you to determine the internal rate of return of the investment opportunity based on the following information: expected holding period: years; end of first year NOI estimate: $113,900; NOI estimates in subsequent years will grow by 5 % per year; price at which the property is expected to be sold at the end of year 5: $1,615,205.22; current market price of the property: $1,475,667.71. A. 8.6% B. 9.86% C. 10% D -15.3%
Assume that you are planning to buy a property producing natural resources. You think you will keep the property for the next 23 years. You plan to spend $700 per acre. You will have incurred costs of $11 per acre for the 23 years prior to selling the property. You believe that you will receive $26/acre/year in revenue during the investment period. What price (at time of the future sale) will you need to get for the property under 2 MAR scenarios. (using both 5.8% and 8% as MAR).
3. You have been asked to evaluate investment of purchasing a parking lot under the following conditions: - The proposal is for a parking lot costing $4,000,000. The deck has an expected useful life of 15 years and a net salvage value of $625,000 (after tax adjustment). - The tenants have recently signed long-term leases, which leads you to believe that the current rental income of $250,000 per year will remain constant for the first five years, then the rental income will increase by 10% for every five-year interval over the remaining asset life. The estimated operating expenses, including income taxes, will be $65,000 for the first year and will increase by $6,000 each year thereafter. Considering an annual interest rate of 15%, what is the net present worth (NPW)? O $4M A = $250k $65k 5 A = $275k G=$6k S = $625k A = $302.5k 10 15 4. Would you accept the investment of the previous question? In other words, is it profitable?
Elena's Café is investing in a new commercial refrigeration unit that will cost $40,000. They estimate that the unit will produce annual revenues of $12,000 for each of the next 6 years. The refrigeration unit will have negligible salvage value at the end of the next 6 years. Assuming a tax rate of 24%, a MACRS 5-year property class, 50% bonus depreciation, and an after-tax MARR of 8%, compute the present worth of the refrigeration unit and determine whether or not Elena's Café should invest in the refrigeration unit.
Athena Investment Company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, Athena believes that next year’s cash flow will be $100,000. It also believes that the cash flow will rise in the amount of $5,000 each year for the foreseeable future. It plans to own the property for at least 10 years. Athena believes that it should earn a return (r) of at least 11 percent. Athena estimates the value of the property today to be $1,224,808. What is the current, or going-in, cap rate for this property? A. 11.05% B. 10.49% C. 8.57% D. 8.16%
Kartman Corporation is evaluating four different real estate investments. Management plans to buy the properties today and sell them three years from today. The annual discount rate for these investments is 12%. The following table summarizes the initial cost and the sale price in three years for each property: Cost Today Sale Price in Year 3 $520,000 $1,020,000 Parkside Acres 870,000 1,470,000 Real Property Estates Lost Lake Properties 910,000 510,000 220,000 Overlook 20,000 Kartman has a total capital budget of $540,000 to invest in properties. Which properties should it choose? ... The profitability index for Parkside Acres is (Round to two decimal places.)
Yogesh
Armor Investment Company is considering the acquisition of a heavily depreciated building on 10 acres of land. It expects to rent the building as a storage facility and expects to collect cash flows equal to $100,000 next year. However, because depreciation is expected to increase, Armor expects cash flows to decline at a rate of 4 percent per year indefinitely. Armor expects to earn an IRR on investment return () at 13 percent. Required: a. What is the value of this property? b. Assume that after five years the building could be demolished and the land could be redeveloped with a strip retail improvement. The latter would produce NOI of $200,000 per year, grow at 3 percent per year, and cost $1 million to build. Investors currently earn a 10 percent IRR on such investments. What is the profit to be earned? Complete this question by entering your answers in the tabs below. Required A Required B What is the value of this property? Note: Round your final answer to the nearest dollar…

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