Zenith Investment Company is considering the purchase of an office property. It has done an extensive market analysis and has estimated that based on current market supply or demand relationships, rents, and its estimate of operating expenses, annual NO/ will be as follows: Year 1 12345678 ΝΟΙ $ 1,105,000 1,105,000 1,105,000 1,235,000 1,285,000 1,335,000 1,374,000 1,414,170 A market that is currently oversupplied is expected to result in cash flows remaining flat for the next three years at $1,105,000. During years 4, 5, and 6, market rents are expected to be higher. It is further expected that beginning in year 7 and every year thereafter, NOI will tend to reflect a stable, balanced market and should grow at 3 percent per year indefinitely. Zenith believes that investors should earn a 12 percent return (r) on an investment of this kind. Required: a. Assuming that the investment is expected to produce NO/ in years 1 to 8 and is expected to be owned for seven years and then sold, what would be the value for this property today? (Hint. Begin by estimating the reversion value at the end of year 7. Recall that the expected IRP = 12% and the growth rate (g) in year 8 and beyond is estimated to remain level at 3%.) b. What would the terminal capitalization rate (RT) be at the end of year 7? c. What would the going-in capitalization rate (R) be based on year 1 NOR? Complete this question by entering your answers in the tabs below. Required A Required B Required C Assuming that the investment is expected to produce NOI in years 1 to 8 and is expected to be owned for seven years and then sold, what would be the value for this property today? (Hint: Begin by estimating the reversion value at the end of year 7. Recall that the expected IRP = 12% and the growth rate (g) in year 8 and beyond is estimated to remain level at 3%.) (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.) Present value of the property Required A Required B > Show less▲
Zenith Investment Company is considering the purchase of an office property. It has done an extensive market analysis and has estimated that based on current market supply or demand relationships, rents, and its estimate of operating expenses, annual NO/ will be as follows: Year 1 12345678 ΝΟΙ $ 1,105,000 1,105,000 1,105,000 1,235,000 1,285,000 1,335,000 1,374,000 1,414,170 A market that is currently oversupplied is expected to result in cash flows remaining flat for the next three years at $1,105,000. During years 4, 5, and 6, market rents are expected to be higher. It is further expected that beginning in year 7 and every year thereafter, NOI will tend to reflect a stable, balanced market and should grow at 3 percent per year indefinitely. Zenith believes that investors should earn a 12 percent return (r) on an investment of this kind. Required: a. Assuming that the investment is expected to produce NO/ in years 1 to 8 and is expected to be owned for seven years and then sold, what would be the value for this property today? (Hint. Begin by estimating the reversion value at the end of year 7. Recall that the expected IRP = 12% and the growth rate (g) in year 8 and beyond is estimated to remain level at 3%.) b. What would the terminal capitalization rate (RT) be at the end of year 7? c. What would the going-in capitalization rate (R) be based on year 1 NOR? Complete this question by entering your answers in the tabs below. Required A Required B Required C Assuming that the investment is expected to produce NOI in years 1 to 8 and is expected to be owned for seven years and then sold, what would be the value for this property today? (Hint: Begin by estimating the reversion value at the end of year 7. Recall that the expected IRP = 12% and the growth rate (g) in year 8 and beyond is estimated to remain level at 3%.) (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.) Present value of the property Required A Required B > Show less▲
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
Transcribed Image Text:Zenith Investment Company is considering the purchase of an office property. It has done an extensive market analysis and has
estimated that based on current market supply or demand relationships, rents, and its estimate of operating expenses, annual NO/ will
be as follows:
Year
1
12345678
ΝΟΙ
$ 1,105,000
1,105,000
1,105,000
1,235,000
1,285,000
1,335,000
1,374,000
1,414,170
A market that is currently oversupplied is expected to result in cash flows remaining flat for the next three years at $1,105,000. During
years 4, 5, and 6, market rents are expected to be higher. It is further expected that beginning in year 7 and every year thereafter, NOI
will tend to reflect a stable, balanced market and should grow at 3 percent per year indefinitely. Zenith believes that investors should
earn a 12 percent return (r) on an investment of this kind.
Required:
a. Assuming that the investment is expected to produce NO/ in years 1 to 8 and is expected to be owned for seven years and then
sold, what would be the value for this property today? (Hint. Begin by estimating the reversion value at the end of year 7. Recall that
the expected IRP = 12% and the growth rate (g) in year 8 and beyond is estimated to remain level at 3%.)
b. What would the terminal capitalization rate (RT) be at the end of year 7?
c. What would the going-in capitalization rate (R) be based on year 1 NOR?
Complete this question by entering your answers in the tabs below.
Required A Required B Required C
Assuming that the investment is expected to produce NOI in years 1 to 8 and is expected to be owned for seven years and
then sold, what would be the value for this property today? (Hint: Begin by estimating the reversion value at the end of year
7. Recall that the expected IRP = 12% and the growth rate (g) in year 8 and beyond is estimated to remain level at 3%.) (Do
not round intermediate calculations. Round your final answer to nearest whole dollar amount.)
Present value of the property
Required A
Required B >
Show less▲
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