An Investor is considering the purchase of a small office building. The NO/is expected to be the following: Year 1.$234,000; Year 2 $244,000; Year 3. $254,000; Year 4, $264,000; Year 5, $274,000. The property will be sold atthe end of year 5 and the Investor believes that the property value should have appreciated at a rate of 3 percentper year during the five-year period. The Investor plans to pay all cash for the property and wants to earn a 10percent return on investment (IRR) compounded annually.Required:a. What should be the present value of the property today?b. What should be the property value (REV) at the end of year 5 In order for the Investor to earn the 10% IRR?c. Based on your answer in (b). If the building could be reproduced for $2,640,000 today, what would be theunderlying value of the land?Complete this question by entering your answers in the tabs below.Required A Required B Required CWhat should be the present value of the property today?Note: Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.Present value of the property< Required ARequired B >

Given Information: Year12345Cash Flows234000244000254000264000274000Required Rate10%

Answered: Required: a. What should be the present…

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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Written report with the following content: • Appendix1: Leasing Explain the calculations. Your recommendations Objective: Should FFT lease or construct their own production facility Option 1: Construct Costs to incur: Buying land, construct building and getting ready for use (FFT has these funds available in their bank account today so no mortgage is needed) $ 1,200,000 Taxes, insurance, and repairs (per year) $110,000 Intended years of use 15 Projected market value in 15 years $ 1,250,000 Option 2: Lease Intended years of use 15 Deposit required today (this deposit will be returned to FFT when the lease contract is complete is 15 years) $ 100,000 Annual lease payment $ 160,000 Property taxes (annual) to be paid by FFT $ 15,000 Insurance (annual) to be paid by FFT $ 15,000 Required rate of return 8% Methodology: The consulting team is proposing to perform a NPV analysis and determine the benefit to leasing or construction. Based on the analysis, they will recommend the preferred option…
QUESTION 3 If the first cost of an asset is $15,000, and an annual operating cost of $5000 with a salvage value of $3000 after 5 years. What will be the Annual worth and the Capital recovery. If i- 10% O AW -S-8465 and CR - $+4508 O AW = S-8465 and CR = $-4508 AW = S+4508 and CR = $-8465 O AW S-4508 and CR S-8465
The following proforma shows unleveraged cash flows for a property if an investor were to purchase it today and resell it at the end of the third year: (Show answer in Excel) What is the present value of the each of the discounted cash flows from Year 1, Year 2, and Year 3, using a discount rate of 8.75% (hint: calculate each on separately)? What is the Net Present Value of this investment?
9.)show complete solution, final answer should be in two decimal only, i will automatically give upvote.
Your firm is considering a number of mutually exclusive choices for a property that you recently acquired. The following are the projected cash flows for one of the projects over its seven-year life. Cash Flows 0 1 2 3 4 5 6 7 (600,000) 100,000 120,000 140,000 160,000 180,000 200,000 220,000 If the appropriate discount rate is 12%, what is the annualized Net Present Value for this option? (Do not round intermediate calculations and enter your answer in dollars with-no decimal places, e.g., 24316.)
An investor is considering the development of a recreational complex with the following relevant data initial cost is P54M estimated life is 15 years salvage value is P2 5M yearly costs for operations and maintenance is P3 5M annual property tax is 4% of first cost insurance premium (payable at the start of the year) is 2% of first cost expected yearly revenue is P15M If the investor applies a 10% MARR determine the annual worth of this venture
10
An investor is considering an investment property, but will only pay the price that will result in their desired IRR, given expected cash flows. The property is expected to generate the following cash flows from operations: year 1: $12,000; year 2: $12,600; year 3: $13,230; and year 4: $13,890. Assume that a the end of year 4, the property could be sold to net $190,000. What price must an investor offer to receive an expected IRR of 12%? $139,518 $153,396 $159,752 $145,254 $170,522
Assume that property investor expects NOI to be $55 000, $64 000 and $67 000 for next 4 years with capitalisation rate of 11%, holding period expected to be 32 years with annual appreciation of 3% and sale commission of 6%. Would you buy the property if owners would like to sell it for $520 000?
Do b only
QUESTION 4 Max Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $58540. The equipment will have an initial cost of $190150 and have a 5-year life. The salvage value of the equipment is estimated to be $23100. Factors to use for n=5, 1=10% (DO NOT USE ANY OTHER FACTORS OR EQUATIONS) Present Value of an Annuity of $1 Present Value of $1 3.7908 0.6209 6.1051 1.6105 Future Value of an Annuity of $1 Future Value of $1 If the hurdle rate is 10%, what is the approximate net present value? Ignore income taxes.
Anewly built property, containing space fora store and two offices, can be purchased for P1200,000 A prospective buyer estimates that during the next 10 years he can obtain annual rentals of at least P6oo.000 from the property and that the annual Out-of-pocket cisbursements will not exceed P42.000. he belleves that he should be able to dispose of the property at the end of 10 years at not less than P500.000. Annual taxes and insurance will total 2.8% of the first cost. Assume he has Sutficient eguity capital to purenase the property and that the average return he is obtaining from his capital is 30% Would you recommend the investment? a) Use Rate of retum method b) Use payout or payback method

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