Consider the following loan information. . Total acquisition price: $3,000,000. Property consists of twelve office suites,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider the following loan information. . Total acquisition price: $3,000,000. Property consists of twelve office suites, five on the first floor and seven on the second. Contract rents: three suites at $2,400 per month, two at $3,000 per month, and seven at $1,330 per month. Annual market rent increases: 3% per year. W . .. . Vacancy and collection losses: 5% per year. .. Operating expenses: 35% of effective gross income each year. . Capital expenditures: 6% of effective gross income each year. . . W Expected holding period: 5 years. W Expected selling price in year 5: Year 6 NOI capitalized at 5%. Selling expenses in year 5: 3% of the sale price. First mortgage loan: 75% LTV. . . M Annual mortgage interest rate: 4.5%. Loan term and amortization period: 25 years (monthly payments). Total up-front financing costs: 2% of loan amount. Required return: 9% 1. Create a one-year operating pro forma and calculate investment criteria (cap rate, equity dividend rate, net income multiplier, effective gross income multiplier, debt coverage ratio, debt yield ratio, and loan-to- value ratio). 2. Create a five-year operating pro forma up to BTCF and BTER. 3. Calculate the NPV and IRR of the project based on the 5-year levered cash flows. 4. (Sensitivity Test) Calculate the project NPV of levered cash flows based on the following required return assumptions: 10%, 12%, 14%, 16%, 18%, and 20%. 5. (Extra Credit 5pts) Calculate the project NPV of levered cash flows when LTV is 90% (instead of 75%). How does it change the NPV and IRR? Consider the following loan information. . Total acquisition price: $3,000,000. Property consists of twelve office suites, five on the first floor and seven on the second. Contract rents: three suites at $2,400 per month, two at $3,000 per month, and seven at $1,330 per month. Annual market rent increases: 3% per year. W . .. . Vacancy and collection losses: 5% per year. .. Operating expenses: 35% of effective gross income each year. . Capital expenditures: 6% of effective gross income each year. . . W Expected holding period: 5 years. W Expected selling price in year 5: Year 6 NOI capitalized at 5%. Selling expenses in year 5: 3% of the sale price. First mortgage loan: 75% LTV. . . M Annual mortgage interest rate: 4.5%. Loan term and amortization period: 25 years (monthly payments). Total up-front financing costs: 2% of loan amount. Required return: 9% 1. Create a one-year operating pro forma and calculate investment criteria (cap rate, equity dividend rate, net income multiplier, effective gross income multiplier, debt coverage ratio, debt yield ratio, and loan-to- value ratio). 2. Create a five-year operating pro forma up to BTCF and BTER. 3. Calculate the NPV and IRR of the project based on the 5-year levered cash flows. 4. (Sensitivity Test) Calculate the project NPV of levered cash flows based on the following required return assumptions: 10%, 12%, 14%, 16%, 18%, and 20%. 5. (Extra Credit 5pts) Calculate the project NPV of levered cash flows when LTV is 90% (instead of 75%). How does it change the NPV and IRR?
Expert Answer:
Answer rating: 100% (QA)
1 OneYear Operating Pro Forma and Investment Criteria Potential Gross Income PGI 2400 3 3000 2 1330 7 31710 12 380520 Vacancy and Collection Loss 5 38... View the full answer
Related Book For
Real Estate Finance and Investments
ISBN: 978-0073377339
14th edition
Authors: William Brueggeman, Jeffrey Fisher
Posted Date:
Students also viewed these finance questions
-
The property consists of 10 office suites, 4 on the first floor and 6 on the second. - Contract rents: 2 suites at $1,500 per month, 2 at $3,600 per month, and 6 at $1,560 per month. - Vacancy and...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
1. What are the four basic types of unemployment? Which type is most pronounced during difficult economic times such as we have been experiencing during the last few years? Which type is most...
-
What forces are driving small businesses into international markets?
-
A transducer produces ultrasonic waves of frequency 800 kHz. The speed of sound in the crystal is 5200 m s 1 . Calculate the optimum thickness for the crystal.
-
Can mezzanine financing in the context of an LBO be compared with equity or debt?
-
During 2017 the Lung Association received a contribution of marketable securities that were to be placed in a permanent endowment fund. Neither donor stipulations nor applicable state law requires...
-
Budget Excel Project - Astro Co. to Astro Corporation is preparing its budget for the coming year, 2020. The first step plan for the first quarter of that coming year. The company has gathered...
-
Congress recently enacted the Family Legal Services for the Poor Act. The Act establishes a Poverty Law Office in every state that is responsible for representing indigent clients in family law...
-
Kruger' s sustainability activities in line with united nation sustainability goals and what are the challenges they faced in sustainability
-
A machine costing $ 2 1 2 , 4 0 0 with a four - year life and an estimated $ 1 6 , 0 0 0 salvage value is installed in Luther Company\'s factory on January 1 . The factory manager estimates the...
-
The organization obtains or generates and uses relevant quality information to support the functioning of the other components of internal control. How could you test to make sure the company has...
-
Assume that the existing debt has covenants barring firm X from issuing new senior debt without all creditors consent. The shareholders and creditors must therefore negotiate. g. Say a negotiator...
-
2. Find limit cycles (if any) for dx = x + y = X x + y2 dt dy = -x+y-yx + y.
-
Your boss comes to your office. He has just seen a YouTube video. A single person appears in the video. Although he appears in the shadows in an effort to hide his identity, the boss clearly...
-
You recently received the following e-mail from a client and friend: Hey Tax Guru, I cannot believe it is almost year end! Only a few days before it's 2021. As you recall, I was lucky enough to win...
-
In Exercises 1558, find each product. (9 - 5x) 2
-
How can mechanics liens achieve priority over first mortgages that were recorded prior to the mechanics lien?
-
How does each of the following affect the IRR on the ATCF difference from owning versus leasing? a. The property can be leased for $175,000 instead of $200,000. b. A loan can be obtained at an 8...
-
What are special allocations?
-
Joust Oil Company had the following transactions in 2015. Record the transactions. a. Acquired an undeveloped lease, $40,000 b. Paid a drilling contractor as follows: c. Paid costs in evaluating the...
-
Support equipment used to drill a development well cost $13,000 and has a 10-year life with a salvage value of $1,000. The equipment was used for three months in drilling Badger #1. Record...
-
Bartz Corporation paid a seismic crew $2,000 to complete a G&G survey to select a drillsite where Cellar #1 would be spudded-in. Record the above transaction.
Study smarter with the SolutionInn App