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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 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 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 Excel Spreadsheet is included as an attached image. Thank You in advance!                                                                                                                                                                                                                                                                

5 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:5 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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