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Please clearly explain the steps on how you determine the 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 current market price the property is being sold for is $2,890,000. the Excel Spreadsheet is included as an attached image. Thank You in advance!

Please clearly explain the steps on how you determine the 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 current market price the property is being sold for is $2,890,000. the Excel Spreadsheet is included as an attached image. Thank You in advance!

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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Please clearly explain the steps on how you determine the 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 current market price the property is being sold for is $2,890,000. the Excel Spreadsheet is included as an attached image. Thank You in advance!           

inputs acquisition Price Expected 1st Year NOI "Going in" CAP CAP over (below) market Required Rate of Return Expected NOI Growth Terminal NOI Growth purchase closing cost End of year 0 1 2 3 4 5 6 7 8 Amortization schedule: $2,890,000 Down Payment $149,991 Mortgage Rate 5.19% Maturity 18 19 20 0.50% Levered Required Return 8.50% Minimum Required DCR 3.50% Expected Treasury Yield 3.20% Expected LT Inflation $72,250 Expected Risk Premium (bp) ΝΟΙ $149,991 $155,241 $160,674 $166,298 $172,118 $178,142 $184,377 $190,830 Acquisition/Disposition ($2,962,250) $3,395,466 P 0 1 $99,830 2 $97,314 3 $94,629 4 $91,765 5 $88,708 6 $85,447 7 $81,968 8 $78,255 1 9 $74,293 10 $70,066 11 $65,556 12 $60,743 13 $55,609 14 $50,130 15 $44,284 16 $38,046 17 $31,390 $24,289 $16,712 $8,627 Total PV: NPV: IRR: $37,553 $40,069 $42,754 $45,618 $48,675 $51,936 $55,415 $59,128 $63,090 $67,317 $71,827 $76,640 $81,774 $87,253 $93,099 $99,337 $105,993 $113,094 $120,671 $128,756 Outputs: $ 1,400,000 Terminal CAP 6.70% Loan Amount 20 Mortgage Payment (Annual) 10.50% DCR 1.25 Mimimum DCR Satisfied? 4.30% Mortgage Balance at Sale 3.00% selling expense 400 CF ($2,962,250) $149,991 $155,241 $160,674 $166,298 $172,118 $178,142 $184,377 $3,450,478 $2,640,275 -$321,975 6.65% Ending balance $1,490,000 $1,452,447 $1,412,378 $1,369,624 $1,324,006 $1,275,332 $1,223,396 $1,167,980 $1,108,852 $1,045,762 $978,445 $906,618 $829,978 $748,204 $660,951 $567,851 $468,514 $362,522 $249,428 $128,756 $0 PV of CF ($2,962,250) $138,241 $131,870 $125,793 $119,996 $114,466 $109,191 $104,160 $1,796,558 max price 5.80% $1,490,000 $137,383 1.09 No $1,108,852 $135,819 DS ($137,383) ($137,383) ($137,383) ($137,383) ($137,383) ($137,383) ($137,383) ($1,246,235) Total PV: NPV: IRR: Levered CF $ (1,400,000) $12,608 $17,858 $23,291 $28,915 $34,735 $40,759 $46,994 $2,204,243 $1,121,184 ($278,816) 7.32% PV of Levered CF downpayment ($1,400,000) pv of levered cf(max downpay $11,410 max price $14,625 $17,262 $19,394 $21,084 $22,390 $23,362 $991,656 48% $1,121,184 $2,335,800
Transcribed Image Text:inputs acquisition Price Expected 1st Year NOI "Going in" CAP CAP over (below) market Required Rate of Return Expected NOI Growth Terminal NOI Growth purchase closing cost End of year 0 1 2 3 4 5 6 7 8 Amortization schedule: $2,890,000 Down Payment $149,991 Mortgage Rate 5.19% Maturity 18 19 20 0.50% Levered Required Return 8.50% Minimum Required DCR 3.50% Expected Treasury Yield 3.20% Expected LT Inflation $72,250 Expected Risk Premium (bp) ΝΟΙ $149,991 $155,241 $160,674 $166,298 $172,118 $178,142 $184,377 $190,830 Acquisition/Disposition ($2,962,250) $3,395,466 P 0 1 $99,830 2 $97,314 3 $94,629 4 $91,765 5 $88,708 6 $85,447 7 $81,968 8 $78,255 1 9 $74,293 10 $70,066 11 $65,556 12 $60,743 13 $55,609 14 $50,130 15 $44,284 16 $38,046 17 $31,390 $24,289 $16,712 $8,627 Total PV: NPV: IRR: $37,553 $40,069 $42,754 $45,618 $48,675 $51,936 $55,415 $59,128 $63,090 $67,317 $71,827 $76,640 $81,774 $87,253 $93,099 $99,337 $105,993 $113,094 $120,671 $128,756 Outputs: $ 1,400,000 Terminal CAP 6.70% Loan Amount 20 Mortgage Payment (Annual) 10.50% DCR 1.25 Mimimum DCR Satisfied? 4.30% Mortgage Balance at Sale 3.00% selling expense 400 CF ($2,962,250) $149,991 $155,241 $160,674 $166,298 $172,118 $178,142 $184,377 $3,450,478 $2,640,275 -$321,975 6.65% Ending balance $1,490,000 $1,452,447 $1,412,378 $1,369,624 $1,324,006 $1,275,332 $1,223,396 $1,167,980 $1,108,852 $1,045,762 $978,445 $906,618 $829,978 $748,204 $660,951 $567,851 $468,514 $362,522 $249,428 $128,756 $0 PV of CF ($2,962,250) $138,241 $131,870 $125,793 $119,996 $114,466 $109,191 $104,160 $1,796,558 max price 5.80% $1,490,000 $137,383 1.09 No $1,108,852 $135,819 DS ($137,383) ($137,383) ($137,383) ($137,383) ($137,383) ($137,383) ($137,383) ($1,246,235) Total PV: NPV: IRR: Levered CF $ (1,400,000) $12,608 $17,858 $23,291 $28,915 $34,735 $40,759 $46,994 $2,204,243 $1,121,184 ($278,816) 7.32% PV of Levered CF downpayment ($1,400,000) pv of levered cf(max downpay $11,410 max price $14,625 $17,262 $19,394 $21,084 $22,390 $23,362 $991,656 48% $1,121,184 $2,335,800
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