Please clearly and thoroughly explain the steps on how you determine the expected levered-before-tax-annual rate of return on your capital and 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. The Excel Spreadsheet is included as an attached image for the information. Thank You in advance!
Please clearly and thoroughly explain the steps on how you determine the expected levered-before-tax-annual rate of return on your capital and 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. The Excel Spreadsheet is included as an attached image for the information. Thank You in advance!
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
Please clearly and thoroughly explain the steps on how you determine the expected levered-before-tax-annual
Transcribed Image Text:Apartment Complex
Inputs:
Acquisition Price
Expected 1st Year NOI
"Going in" CAP
CAP over (below) market
Required Rate of Return
Expected NOI Growth
Terminal NOI Growth
Acquisition Price + Closing Costs $
End of year
0
1
Total
2
3
4
5
6
7
8
Amortization schedule:
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
I
$2,890,000 Down Payment
$149,991 Mortgage Rate
5.19% Maturity
0.50% Levered Required Return
8.50% Minimum Required DCR
3.50% Expected Treasury Yield
2.90% Expected LT Inflation.
2,962,250 Expected Risk Premium (bp)
NOI
$149,991
$155,241
$160,674
$166,298
$172,118
$178,142
$184,377
$190,830
$100,717
$98,206
$95,524
$92,660
$89,601
$86,334
$82,845
$79,119
$75,140
$70,890
$66,350
$61,503
$56,325
$50,796
$44,890
$38,583
$31,847
$24,653
$16,969
$8,764
$1,271,714
P
P
Acquisition/Disposition
($2,962,250)
$3,195,084
Total PV:
NPV:
IRR:
Outputs:
$ 1,481,125 Terminal CAP
6.80% Loan Amount
20 Mortgage Payment (Annual)
11.00% DCR
$62,502
$66,752
$71,292
$76,139
$81,317
$86,846
$92,752
$99,059
$105,795
$112,989
$120,672
$128,878
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
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
$2,606,659
-$355,591
6.45%
$51,308 $1,218,315
$54,797
$1,163,518
$58,523
$1,104,995
$1,042,493
$975,741
$904,449
I + P
$828,310
$746,993
$660,146
$567,394
$468,335
$362,540
$249,551
$128,878
$0
$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 Expenses $
No
$1,104,995
DS
($137,642)
($137,642)
($137,642)
($137,642)
($137,642)
($137,642)
($137,642)
($1,242,637)
Total PV:
NPV:
IRR:
Levered CF
$ (1,481,125)
$12,349
$17,599
$23,032
$28,656
$34,476
$40,500
$46,735
$2,143,277
$1,055,775
($425,350)
6.17%
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
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