Problem 10-9 The NOI for a small income property is expected to be $155,100 for the first year. Financing will be based on a 1.2 DCR applied to the first year NOI, will have a 10 percent interest rate, and will be amortized over 20 years with monthly payments. The NOI will increase percent per year after the first year. The investor expects to hold the property for five years. The resale price is estimated by applying 9 percent terminal capitalization rate to the sixth-year NOI, Investors require a 15 percent rate of return on equity (equity yield rate) for this type of property. Required: a. What is the present value of the equity interest in the property? b. What is the total present value of the property (mortgage and equity interests)? c. Based on your answer to part (b). what is the implied overall capitalization rate?
Problem 10-9 The NOI for a small income property is expected to be $155,100 for the first year. Financing will be based on a 1.2 DCR applied to the first year NOI, will have a 10 percent interest rate, and will be amortized over 20 years with monthly payments. The NOI will increase percent per year after the first year. The investor expects to hold the property for five years. The resale price is estimated by applying 9 percent terminal capitalization rate to the sixth-year NOI, Investors require a 15 percent rate of return on equity (equity yield rate) for this type of property. Required: a. What is the present value of the equity interest in the property? b. What is the total present value of the property (mortgage and equity interests)? c. Based on your answer to part (b). what is the implied overall capitalization rate?
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
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Transcribed Image Text:Problem 10-9
The NOI for a small income property is expected to be $155,100 for the first year. Financing will be based on a 12 DCR applied to the
first year NOI, will have a 10 percent interest rate, and will be amortized over 20 years with monthly payments. The NO/will increase 4
percent per year after the first year. The investor expects to hold the property for five years. The resale price is estimated by applying
9 percent terminal capitalization rate to the sixth-year NOI, Investors require a 15 percent rate of return on equity (equity yield rate) for
this type of property.
Required:
a. What is the present value of the equity interest in the property?
b. What is the total present value of the property (mortgage and equity interests)?
c. Based on your answer to part (b), what is the implied overall capitalization rate?
Transcribed Image Text:Required A
Required B
What is the present value of the equity interest in the property? (Do not round intermediate calculations. Round your final
answer to the nearest dollar amount.)
PV of cash flow to equity
Required A Required B
Required C
Required A Required B
Required C
What is the total present value of the property (mortgage and equity interests)? (Do not round intermediate calculations.
Round your final answer to the nearest dollar amount.)
Total present value
Required C
Required /
%
< Required A
Required B >
Based on your answer to part (b), what is the implied overall capitalization rate? (Do not round intermediate calculations.
Round your final answer to 2 decimal places.)
Capitalization rate
< Required B
Required C >
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