Case QuestionsDirections: Using the data provided, and your knowledge of finance, answer all questions listed below. Qualitative questions can be addressed in a word document; calculations, including all work required for each question, should be submitted on an Excel spreadsheet.Note on Question #6: NPV calculations should use the formula for TVM based on =NPV(rate, value 1, value 2...)+original purchase price as a negative. You DO NOT need to calculated the XNPV values.Question #1What are the total revenues for Property 1?Question #2What are the revenues for Property 2 in September 2019?Question #3What are the costs for Property 3 in October 2020?Question #4What are total revenues less total costs for Property 4a?Question #5What is the absolute value of difference in operating costs between Properties 4a and 4b?Question #6Using the provided data, calculate the NPV for each project.Question #7: Analyzing your data from Property 4, should you complete the overhaul (choice B) or continue to rent as is (choice A). Explain your reasoning.Question #8: Which properties should the company invest in subject to the constraint on purchase price in order to maximize their increase in net present value?Question #9: Based on the provided information, which property would you choose to move forward with if you were choosing an investment? Why would you choose this property?Question #10: Based on the provided information, which property is the worst choice for investment? Why is it the worst choice?Question #11: What additional information would you want to know before making a final selection for a property investment? Round 1 Section 2 - Case Study Information PackINVESTMENT DETAILSProperty 1$450,000Property 2$550,0005.5 yearsProperty 3$500,0006 yearsProperty 4a$470,0004 yearsProperty 4bAs 4aPurchase PriceInvestment length5 yearsAs 4aN/AN/AN/A$125,000paid 31 Dec 2019$675,000Up to overhaul as 4aOverhaul costN/ATerminal value$500,000$45,000 per yearPaid monthly$575.000$550,000$55,000 per yearPaid quarterly(starting January)Indexed at 2%$570,000$55,000 per yearPaid monthlyRental revenue$60,000 per yearPaid quarterly(starting March)Indexed at 3%Indexed at 2.5%Not indexedAfterwards:$75,000 per yearPaid monthlyNot indexedOperating costs$4,500 per yearPaid monthly$3,000 per yearPaid monthlyIndexed at 1%5% of revenuesUp to overhaul as 4a$1,000 in April$3,000 in OctoberIndexed at 3%Indexed at 2%Afterwards:8% of revenues Round 1 Section 2 - Case Study Information PackSection 2: Case Study – Castles In The AirINTRODUCTIONAll the inputs mentioned below are provided in the workbook for this case study.You are working for a company which is considering purchasing a number of properties. You havebeen asked to model each of the available investments to assist in choosing a portfolio (up to amaximum purchase price of $1,700,000) that maximizes the value to the company, as measured by anincrease in net present value. The company's cost of capital is 8%.AVAILABLE INVESTMENTSFull details of the investments may be found on the table on the subsequent pageThe purchase price for each property should be paid on 31 December 2017.The company holds the property for a number of years (the investment length).During the investment length, the company receives rental revenue and pays operating costs.Where amounts are indexed the base date is 1 January 2018 and the index should stepannually (i.e. a full year of indexation should first be applied on 1 January 2019). Do NOT roundinflated prices to whole cents in interim calculations.At the end of the investment length, the company will sell the property for the terminal value. Theterminal value is not indexed.For property 4, the company has the option of overhauling the property.Details of the property without overhaul are listed under property 4a,Details of the property with overhaul are listed under property 4b.The overhaul cost should not be considered in the purchase price constraint.It is NOT possible to invest in both property 4a and property 4b.The overhaul cost (which is not indexed).Prepare your model and then use it to answer the given questions.When finished, please upload your workbook. See questions pagefor further directions.

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Answered: Question #1 What are the total revenues…

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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Case Questions

Directions: Using the data provided, and your knowledge of finance, answer all questions listed below. Qualitative questions can be addressed in a word document; calculations, including all work required for each question, should be submitted on an Excel spreadsheet.

Note on Question #6: NPV calculations should use the formula for TVM based on =NPV(rate, value 1, value 2...)+original purchase price as a negative. You DO NOT need to calculated the XNPV values.

Question #1
What are the total revenues for Property 1?

Question #2
What are the revenues for Property 2 in September 2019?

Question #3
What are the costs for Property 3 in October 2020?

Question #4
What are total revenues less total costs for Property 4a?

Question #5
What is the absolute value of difference in operating costs between Properties 4a and 4b?

Question #6
Using the provided data, calculate the NPV for each project.

Question #7: Analyzing your data from Property 4, should you complete the overhaul (choice B) or continue to rent as is (choice A). Explain your reasoning.

Question #8: Which properties should the company invest in subject to the constraint on purchase price in order to maximize their increase in net present value?

Question #9: Based on the provided information, which property would you choose to move forward with if you were choosing an investment? Why would you choose this property?

Question #10: Based on the provided information, which property is the worst choice for investment? Why is it the worst choice?

Question #11: What additional information would you want to know before making a final selection for a property investment?