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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Answered: An investor is considering the purchase…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

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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).
A real-estate developer seeks to determine the most economical height for a new office building. The building will be sold after five years. The relevant net annual revenues and salvage values are as follows: (a) The developer is uncertain about the interest rate (i) to use but is certainthat it is in the range of 5% to 20%. For each building height, find the rangeof values of i for which that building height is the most economical.(b) Suppose that the developer's interest rate is known to be 15%. In terms ofPW, what would be the cost of an error in overestimation of resale valuesuch that the true value is 10% lower than the original estimate?
An investor anticipates that land values for a site will be worth $150,000 in five years. Assume real estate taxes are expected to be $2,000 each year (paid at the end of each year) for the next five years and the investor can rent the parcel for $2,400 per year to a billboard company (also paid at the end of each year). How much can the investor pay today for the site and still earn a 15 percent annual return on his investment?
An investor is considering buying an apartment complex for $2,000,000 that has a projected year one NOI of $140,000 and the NOI is expected to increase three percent annually. The investor intends to hold the property five years, sell it for a price calculated by capitalizing the sixth year NOI at seven percent (round the sale price to the nearest $1,000), and incur a cost of sale of four percent of the projected sale price. The tax assessor shows the improvements to be 80 percent of the total value. The investor's marginal tax rate is 37 percent, capital gains rate is 20 percent, and cost recovery recapture rate is 25 percent. What is the "Without Financing/After Tax” Internal Rate of Return (rounded to nearest whole percent? O 7 percent 8 percent 9 percent 10 percent
A commercial building is proposed to be built in a subdivision. The initial cost is estimated to be P20,500,000.00 with annual maintenance and operational cost of P480,000.00. For austhetic view, it is necessary to be painted every five years at a cost of P500,000.00. Annual income from tenants is expected to be P3,200,000.00. Assuming an annual interest rate of 9% and a 30-year planning horizon, find the benefit - cost ratio.
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.

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