Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

An investor would like to purchase a new apartment property for $2 million. However, she faces the decision of whether to use 70 percent or

image text in transcribed
An investor would like to purchase a new apartment property for $2 million. However, she faces the decision of whether to use 70 percent or 80 percent financing. The 70 percent loan can be obtained at 10 percent interest for 25 years. The 80 percent loan can be obtained at 11 percent interest for 25 years. NOI is expected to be $190,000 per year and increase at 3 percent annually, the same rate at which the property is expected to increase in value. The building and improvements represent 80 percent of value and will be depreciated over 27.5 years (1 : 27.5 per year). The project is expected to be sold after five years. Assume a 36 percent tax bracket for all income and capital gains taxes. a. What would the BTIRR and ATIRR be at each level of financing (assume monthly mortgage amortization)? BTIRR ATIRR 70% Loan 17.32 % 17.12 % 80% Loan 12.33 % 12.74 % b. What is the break-even interest rate (BEIR) for this project? 12.99 %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Factory Accounts

Authors: John Whitmore

1st Edition

0367494825, 9780367494827

More Books

Students also viewed these Accounting questions

Question

How to find if any no. is divisble by 4 or not ?

Answered: 1 week ago