The following 5 questions are based on this situation: Suppose you are considering the acquisition of a hotel that is currently trading at $ 67 million. The current return on such investments on the market is estimated at 10%. The investor's required rate of return is of 11%. The asset's (annual) NOI for the next 5 years [i.e. the current lease term) is $ 6,000,000. At the end of the current lease, you expect the NOI to increase to $ 6,500,000 for the foreseeable future. You anticipate selling the property five years from today. The building to land value ratio is 3:1 and the depreciable life of the property is 39 years. You contacted your banker who is willing to give you a LTV of 80%. The mortgage loan details are: 7.5% 30-year monthly amortizing loan. The tax rates are as follows: 22% income tax, 25% depreciation recapture tax, 20% capital gains tax. Consider straight-line depreciation. The going-in Cap rate is 7%. 5 years later, 50bps additional risk premium should be applied to estimate the going-out cap rate. The cost of sales( and purchase) is 3%. What is the taxable income in year 4?
The following 5 questions are based on this situation: Suppose you are considering the acquisition of a hotel that is currently trading at $ 67 million. The current return on such investments on the market is estimated at 10%. The investor's required rate of return is of 11%. The asset's (annual) NOI for the next 5 years [i.e. the current lease term) is $ 6,000,000. At the end of the current lease, you expect the NOI to increase to $ 6,500,000 for the foreseeable future. You anticipate selling the property five years from today. The building to land value ratio is 3:1 and the depreciable life of the property is 39 years. You contacted your banker who is willing to give you a LTV of 80%. The mortgage loan details are: 7.5% 30-year monthly amortizing loan. The tax rates are as follows: 22% income tax, 25% depreciation recapture tax, 20% capital gains tax. Consider straight-line depreciation. The going-in Cap rate is 7%. 5 years later, 50bps additional risk premium should be applied to estimate the going-out cap rate. The cost of sales( and purchase) is 3%. What is the taxable income in year 4?
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
Related questions
Question
Please only answer practice question 8
Transcribed Image Text:Question 8
On the basis of the data provided at Question 6, how much (in $) is the capital gain tax?
O a. $9,123,160
O b. $6,671,785
O. $ 3,413,333
O d. $ 1,824,632
Transcribed Image Text:Question 6
The following 5 questions are based on this situation: Suppose you are considering the
acquisition of a hotel that is currently trading at $ 67 million. The current return on such
investments on the market is estimated at 10%. The investor's required rate of return is of
11%. The asset's (annual) NOI for the next 5 years (i.e. the current lease term) is $ 6,000,000.
At the end of the current lease, you expect the NOI to increase to $ 6,500,000 for the
foreseeable future. You anticipate selling the property five years from today. The building to
land value ratio is 3:1 and the depreciable life of the property is 39 years. You contacted your
banker who is willing to give you a LTV of 80%. The mortgage loan details are: 7.5% 30-year
monthly amortizing loan. The tax rates are as follows: 22% income tax, 25% depreciation
recapture tax, 20% capital gains tax. Consider straight-line depreciation. The going-in Cap
rate is 7%. 5 years later, 50bps additional risk premium should be applied to estimate the
going-out cap rate. The cost of sales( and purchase) is 3%. What is the taxable income in year
4?
O a. $832,534
O b. $ 4,093,195
O. $ 183,158
O d. $2,120,996
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education