REAL ESTATE FINANCIAL INVESTMENTS
16th Edition
ISBN: 9781265224110
Author: BRUEGGEMAN
Publisher: MCG
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Question
Chapter 4, Problem 1Q
Summary Introduction
To differentiate: The four CPM loans, advantages to borrowers and risks to lenders, common element among each of the loans.
Expert Solution & Answer
Explanation of Solution
First type of the CPM loan is ‘constant amortization mortgage’; it is determined by calculating the monthly installments to be applied on the ‘principle’. After computing the monthly installments, interest is calculated on the balance amount monthly; and then by adding the principle installments and monthly interest, final monthly payment is calculated.
Second type of CPM loan is ‘constant payment mortgage’; in this type of monthly payments are calculated on constant basis and interest in also calculated on constant basis on the original loan amount.
In the third type of CPM loan; the loan is repaid over a certain period of time on the desire of the lender.
In the four type of CPM loan at the end of the period of the ‘mortgage loan’ the principal is paid in full and the lender get interest at fixed rate on the monthly loan outstanding.
The common element in each of the loan is if they all are initiated at same ‘interest rate’ then they all will yield same amount to the lender.
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The prodave paint company earned a net profit margin of 20% on revenues of $20m this year. Fixed Capital Investment was $2 m and depreciation was $3 m. Working capital Investment equals 7.5% of the Sales level in that year. Net income, fixed Capital Investment, depreciation, interest expenses and sales are expected to grow at 10% per year for the next 5 years. After 5 years, the growth in sales , net income, depreciation and interest expenses will decline to a stable 5% per year and fixed Capital Investment and depreciation will offset each other. The tax rate is 40% and the prodave has 1 m shares of common stock outstanding and long term debt paying 12.5% interest trading at it's par value of $32 m. The WACC is 17% during the high growth stage and 15% during the stable growth stage.
Required:
a) Calculate FCFE
b) Determine FCFF
c) Estimate the value of Equity
d) Calculate the value of the Firm
Chapter 4 Solutions
REAL ESTATE FINANCIAL INVESTMENTS
Ch. 4.A - Prob. 1QCh. 4.A - Prob. 2QCh. 4.A - Prob. 1PCh. 4 - Prob. 1QCh. 4 - Prob. 2QCh. 4 - Prob. 3QCh. 4 - Prob. 4QCh. 4 - Prob. 5QCh. 4 - Prob. 6QCh. 4 - Prob. 7Q
Ch. 4 - Prob. 8QCh. 4 - Prob. 9QCh. 4 - Prob. 10QCh. 4 - Prob. 11QCh. 4 - Prob. 12QCh. 4 - Prob. 13QCh. 4 - Prob. 14QCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7PCh. 4 - Prob. 8PCh. 4 - Prob. 9PCh. 4 - Prob. 10PCh. 4 - Prob. 11PCh. 4 - Prob. 12PCh. 4 - Prob. 13PCh. 4 - Prob. 15PCh. 4 - Prob. 16PCh. 4 - Prob. 18PCh. 4 - Prob. 19PCh. 4 - Prob. 20P
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