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Consider the following information: Purchase Price: 750,000 financed 80% at 7% rate of interest for 25 years (amortized monthly) Remaining After-tax Cash Flow from Operations
Consider the following information:
- Purchase Price: 750,000 financed 80% at 7% rate of interest for 25 years (amortized monthly)
- Remaining After-tax Cash Flow from Operations - year 1: $33,000
- Remaining After-tax Cash Flow from Operations - year 2: $22,000
- Remaining After-tax Cash Flow from Operations - year 3: $31,000
- Remaining After-tax Cash Flow from Operations - year 4: $28,000
- Remaining After-tax Cash Flow from Operations - year 5: $26,000
- Remaining After-tax Cash Flow from Operations - year 6: $30,000
- Remaining After-tax Cash Flow from Operations - year 7: $32,000
- Calculate the owner's equity (round to nearest dollar).
- Calculate the financed amount (round to nearest dollar).
- Scenario A: The investor decides to sell the property at the end of year 4 for $900,000. Calculate the loan payoff at the point of sale (this is a balloon payment calculation)
- Calculate the IRR under Scenario A (round to tenth of a percent).
- Scenario B: The investor decides to sell the property at the end of year 7 for $1,100,000. Calculate the loan payoff at the point of sale (this is a balloon payment calculation)
Calculate the IRR under Scenario B (round to tenth of a percent).
Which alternative Scenario A or Scenario B is probably the most desirable?
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To solve this problem we can use the formula for the present value of an annuity to calculate the owners equity and the formula for the loan balance to calculate the financed amount and the loan payof...Get Instant Access to Expert-Tailored Solutions
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