You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,400,000; rents are estimated at $179,200 during the first year and are expected to grow at 2.5 percent per year thereafter Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 8 percent interest for 30 years (total annual payments will be monthly payments 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)? d. What is the NPV using a 10 percent discount rate? e. What is the profitability index using a 10 percent discount rate?
You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,400,000; rents are estimated at $179,200 during the first year and are expected to grow at 2.5 percent per year thereafter Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 8 percent interest for 30 years (total annual payments will be monthly payments 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)? d. What is the NPV using a 10 percent discount rate? e. What is the profitability index using a 10 percent discount 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:You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an
investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is
$1,400,000; rents are estimated at $179,200 during the first year and are expected to grow at 2.5 percent per year thereafter.
Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross
income. A fully amortizing 70 percent loan can be obtained at 8 percent interest for 30 years (total annual payments will be monthly
payments 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and
then sold.
Required:
a. What is the first-year debt coverage ratio?
b. What is the terminal capitalization rate?
c. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)?
d. What is the NPV using a 10 percent discount rate?
e. What is the profitability index using a 10 percent discount rate?
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