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 13%. The following table summarizes the initial cost and the sale price in three years for each property: Kartman has a total capital budget of $600,000 to invest in properties. Which properties should it choose? The profitability index for Parkside Acres is O (Round to two decimal places.) The profitability index for Real Property Estates isO (Round to two decimal places.) The profitability index for Lost Lake Properties isO (Round to two decimal places.) The profitability index for Overlook is (Round to two decimal places) Which properties should Kartman Corporation choose? (Select the best choice below.) OA. Real Property Estates O B. Overlook and Lost Lake Properties OC. Lost Lake Properties OD. Overlook and Parkside Acres

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 13%. The following table summarizes the initial cost and the sale price in three years for each property: Kartman has a total capital budget of $600,000 to invest in properties. Which properties should it choose? The profitability index for Parkside Acres is O (Round to two decimal places.) The profitability index for Real Property Estates isO (Round to two decimal places.) The profitability index for Lost Lake Properties isO (Round to two decimal places.) The profitability index for Overlook is (Round to two decimal places) Which properties should Kartman Corporation choose? (Select the best choice below.) OA. Real Property Estates O B. Overlook and Lost Lake Properties OC. Lost Lake Properties OD. Overlook and Parkside Acres

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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You are an investor buying an existing office building. You determine that year 1 NOI will be $44,000 and that you the going in CAP rate is 4.1%. Using the Direct Capitalization approach, what is the estimated value of the building? You also determine that the Effective Gross Income will be $80,000 and the Effective Gross Income Multiplier is 13. What is the value using the EGIM muliplier approach? You also determine that the Annual Debt Service is 35,000. What is the Debt Service Coverage Ratio?
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%
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You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,360,000; rents are estimated at $174,080 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 6 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor’s expected before-tax internal rate of return on equity invested (BTIRR)? d.…
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 15%. The following table summarizes the initial cost and the sale price in three years for each property: Parkside Acres Real Property Estates Lost Lake Properties Overlook Cost Today $430,000 810,000 660,000 180,000 The profitability index for Parkside Acres is Sale Price in Three Years $850,000 1,410,000 1,100,000 360,000 Kartman has a total capital budget of $810,000 to invest in properties. Which properties should it choose? (Round to two decimal places.)
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