Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

need help (these answers were wrong so please do not provide same numbers) An investor would like to purchase a new apartment property for $2.2

need help (these answers were wrong so please do not provide same numbers)
image text in transcribed
image text in transcribed
An investor would like to purchase a new apartment property for $2.2 million. However, she faces the decision of whether to use 70 percent or 80 percent financing. The 70 percent loan can be obtained at 4 percent interest for 20 years. The 80 percent loan can be obtained at 5 percent interest for 20 years. NOI is expected to be $150,000 per year and increase at 2 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 39 years (139 per year) with no mid-month convention for year 1 . The project is expected to be sold after five years. Assume a 35 percent tax bracket for ordinary income, a 25 percent for depreciation recapture, and 20 percent for capital gains taxes. Required: a. What would the BTIRR and ATIRR be at each level of financing (assume monthly mortgage amortization)? b. What is the break-even interest rate (BEIR) for this project? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. What would the BTIRR and ATIRR be at each level of financing (assume monthly mortgage amortization)? (Do not round intermediate calculations, Round your final answers to 2 decimal places,) Complete this question by entering your answers in the tabs below. What is the break-even interest rate (BEIR) for this project? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered 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

Students also viewed these Finance questions

Question

Explain all drawbacks of application procedure.

Answered: 1 week ago