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 $1,280,000; rents are estimated at $163,840 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 13 percent discount rate? e. What is the profitability index using a 13 percent discount rate? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E

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 $1,280,000; rents are estimated at $163,840 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 13 percent discount rate? e. What is the profitability index using a 13 percent discount rate? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Management by Exception

A manager’s job is a very tough one. A manager needs to look at the various areas of work and as a manager he has to look after two or more important jobs or activities at the same time for the growth of the business. In order to do all these things in an effective manner, a manager must adopt or practice different management styles and tactics.

Question

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
$1,280,000; rents are estimated at $163,840 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 13 percent discount rate?
e. What is the profitability index using a 13 percent discount rate?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C Required D
Required E

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