please answer Question 2, include 2.1 and 2.2!

this is the answer of question 1, please answer qusetion 2!

fx Commercial rent in the central business district (CBD) is 60 per square metre per month and decreases cumulatively by 5% for each kilometre located a It B D E F G H j K L M N 3. Questions General information You are an investor with 12 million cash to invest. You wish to purchase an office building with this cash. You have a choice between three identical office buildings that are located in different areas of the same city. The following information is available regarding the three possible Investments: Distance from the CBD (km) Building 1 Building 2 Building 3 5 Floor space (square metres) 10 Asking price (GBP) 1,000 1,500 2,000 Management costs (GBP per square metre per month) 8,000,000 12,000,000 11,000,000 8 15 10 9 1. Commercial rent in the central business district (CBD) is 60 per square metre per month and decreases cumulatively by 5% 30 for each kilometre located away from the CBD. Tip: Cumulatively means that, if the building is located 2 kilometres away from the CBD, rent decreases by 5% for the first kilometre (which gives you 57), and by another 5% on 57 on the second B1 Kilometre, which gives you 54. 82 2. Building 2 has been certified as complying with sustainability standards 83 84 3. A suitable discount rate for all areas is 6%. 85 86 4. There is a fountain outside Building that you can persuade the local government to renovate by the time you purchase the 87 property. Similar renovations to properties in the area have increased the rent charged per square metre by 3% 88 89 90 5. The local government will impose a 2% tax, by the time you complete the purchase of the property, on the sale of all properties 91 that are not certified as compliant with sustainability standards. Ignore the effects of any other taxes. 92 93 94 Question 1 95 96 1.1 Calculate the net present value and internal rate of return of each building assuming that not operating income will be received in perpetuity 97 Round your calculated net present value to the nearest pound and your calculated internal rate of return to two decimal places. (15 marks) Instructions A Answer sheet + Umercial rent in the central business district (CBD) is 60 per square metre per month and decreases cumulatively by 5% for each kilometre located an HE B D E F H K Question 1 M N 5 6 1.1 Calculate the net present value and internal rate of return of each building assuming that net operating income will be received in perpetuity. 87 Round your calculated net present value to the nearest pound and your calculated internal rate of return to two decimal places. 28 99 100 101 1.2 Recommend, based on your calculations in Question 1.1. and purely from a financial perspective, which building to invest in (15 marks) 102 103 104 (Answer the questions in the corresponding area of the Answer sheet) (1 mark) 105 106 Question 2 107 108 2.1 Would your answer to Question 1.2 change if you were to finance the asking price of each building with a 50% loan-to-value mortgage? The 109 loan bears interest at a rate of 4% and can be rolled over forever. The discount rate of 6% is still applicable. 110 111 112 (11 marks) 113 2.2 Assume, once again, that the asking price of the building is financed with a 50% loan-to-value mortgage. In addition, assume that banks have 114 different preferences for investing into buildings in different parts of the city as they want to diversify their risk portfolio. Therefore, banks are 115 Willing to offer you different loan prices for the different buildings as follows: 116 117 118 Building 1: 6.65% 119 Building 2: 5.32% 120 Building 3: 3.92% 121 122 Calculate the internal rate of return and not present value of each building assuming that net operating income will be received in perpetuity. 123 and the discount rate of 6% is still applicable. Round your calculated net present value to the nearest pound and your calculated internal rate 124 of return to two decimallaces. 125 (4 marks) 126 (Answer the questions in the corresponding area of the Answer sheet) 127 Question 3 128 129 130 In Questions 1 and 2. rent was assumed to be fixed over time. In reality, this is not the case. The arowth in rent for each of the three buildings Instructions Answer sheet + BO 190 Ax fx choose invest in building 1. because it has highest NPV values and IRR. " v , AT B D E F G H Question 1 1.1 Distance from the CBD (km) Floor space (square metres) Asking price (GBP) Management costs (per square metre per month) Discount rate (%) Sustainability certification (Yes/No) Fountain (Yes/No) Building 1 Okm 1.000 8.000.000 151 - E Building 2 5 km 1.500 12.000.000 5 6% ves no Building 3 10 km 2.000 11.000.000 10 6% no no VAS Rent per square metre per month Management costs per square metre per month Net operating income per square metre per month Monthly net operating income Annual net operating Income 62f 15 E 471 46 5 38 10 26 46.800 561.600 62.140 745.6836 51.848 622181 Present value of net operating income 9,380,000 12,428.057 10.369.687 1 2 3 24 Asking price Transfer tax Initial investment . - 8.000.000 160,0000 8.160.000 1. 12.000.000 - -E 12.000.000 11.000.000 220.000 11.220.000 Net present value Internal rate of return 1.200.000 6.88% 428.057. 6218 850,313 5.55% 26 27 28 29 1.2 30 31 32 Start writing here: choose invest in building 1. because it has highest NPV values and IRR. 34 35 36 2.1 37 38 30 Question 2 Interest rate on loan Loan to value Borrowed amount 4.00% 5.06% 4,000,000 4.00% 50% 6.000.000 4.00% 50% 5.500.000 LE LE Annual net operating Income Annual interest expense Annual geared net operating income 561.600 160.000 LE 401.600 745.683 240.000 505.683 672.181 220.000 402 181 E fx Commercial rent in the central business district (CBD) is 60 per square metre per month and decreases cumulatively by 5% for each kilometre located a It B D E F G H j K L M N 3. Questions General information You are an investor with 12 million cash to invest. You wish to purchase an office building with this cash. You have a choice between three identical office buildings that are located in different areas of the same city. The following information is available regarding the three possible Investments: Distance from the CBD (km) Building 1 Building 2 Building 3 5 Floor space (square metres) 10 Asking price (GBP) 1,000 1,500 2,000 Management costs (GBP per square metre per month) 8,000,000 12,000,000 11,000,000 8 15 10 9 1. Commercial rent in the central business district (CBD) is 60 per square metre per month and decreases cumulatively by 5% 30 for each kilometre located away from the CBD. Tip: Cumulatively means that, if the building is located 2 kilometres away from the CBD, rent decreases by 5% for the first kilometre (which gives you 57), and by another 5% on 57 on the second B1 Kilometre, which gives you 54. 82 2. Building 2 has been certified as complying with sustainability standards 83 84 3. A suitable discount rate for all areas is 6%. 85 86 4. There is a fountain outside Building that you can persuade the local government to renovate by the time you purchase the 87 property. Similar renovations to properties in the area have increased the rent charged per square metre by 3% 88 89 90 5. The local government will impose a 2% tax, by the time you complete the purchase of the property, on the sale of all properties 91 that are not certified as compliant with sustainability standards. Ignore the effects of any other taxes. 92 93 94 Question 1 95 96 1.1 Calculate the net present value and internal rate of return of each building assuming that not operating income will be received in perpetuity 97 Round your calculated net present value to the nearest pound and your calculated internal rate of return to two decimal places. (15 marks) Instructions A Answer sheet + Umercial rent in the central business district (CBD) is 60 per square metre per month and decreases cumulatively by 5% for each kilometre located an HE B D E F H K Question 1 M N 5 6 1.1 Calculate the net present value and internal rate of return of each building assuming that net operating income will be received in perpetuity. 87 Round your calculated net present value to the nearest pound and your calculated internal rate of return to two decimal places. 28 99 100 101 1.2 Recommend, based on your calculations in Question 1.1. and purely from a financial perspective, which building to invest in (15 marks) 102 103 104 (Answer the questions in the corresponding area of the Answer sheet) (1 mark) 105 106 Question 2 107 108 2.1 Would your answer to Question 1.2 change if you were to finance the asking price of each building with a 50% loan-to-value mortgage? The 109 loan bears interest at a rate of 4% and can be rolled over forever. The discount rate of 6% is still applicable. 110 111 112 (11 marks) 113 2.2 Assume, once again, that the asking price of the building is financed with a 50% loan-to-value mortgage. In addition, assume that banks have 114 different preferences for investing into buildings in different parts of the city as they want to diversify their risk portfolio. Therefore, banks are 115 Willing to offer you different loan prices for the different buildings as follows: 116 117 118 Building 1: 6.65% 119 Building 2: 5.32% 120 Building 3: 3.92% 121 122 Calculate the internal rate of return and not present value of each building assuming that net operating income will be received in perpetuity. 123 and the discount rate of 6% is still applicable. Round your calculated net present value to the nearest pound and your calculated internal rate 124 of return to two decimallaces. 125 (4 marks) 126 (Answer the questions in the corresponding area of the Answer sheet) 127 Question 3 128 129 130 In Questions 1 and 2. rent was assumed to be fixed over time. In reality, this is not the case. The arowth in rent for each of the three buildings Instructions Answer sheet + BO 190 Ax fx choose invest in building 1. because it has highest NPV values and IRR. " v , AT B D E F G H Question 1 1.1 Distance from the CBD (km) Floor space (square metres) Asking price (GBP) Management costs (per square metre per month) Discount rate (%) Sustainability certification (Yes/No) Fountain (Yes/No) Building 1 Okm 1.000 8.000.000 151 - E Building 2 5 km 1.500 12.000.000 5 6% ves no Building 3 10 km 2.000 11.000.000 10 6% no no VAS Rent per square metre per month Management costs per square metre per month Net operating income per square metre per month Monthly net operating income Annual net operating Income 62f 15 E 471 46 5 38 10 26 46.800 561.600 62.140 745.6836 51.848 622181 Present value of net operating income 9,380,000 12,428.057 10.369.687 1 2 3 24 Asking price Transfer tax Initial investment . - 8.000.000 160,0000 8.160.000 1. 12.000.000 - -E 12.000.000 11.000.000 220.000 11.220.000 Net present value Internal rate of return 1.200.000 6.88% 428.057. 6218 850,313 5.55% 26 27 28 29 1.2 30 31 32 Start writing here: choose invest in building 1. because it has highest NPV values and IRR. 34 35 36 2.1 37 38 30 Question 2 Interest rate on loan Loan to value Borrowed amount 4.00% 5.06% 4,000,000 4.00% 50% 6.000.000 4.00% 50% 5.500.000 LE LE Annual net operating Income Annual interest expense Annual geared net operating income 561.600 160.000 LE 401.600 745.683 240.000 505.683 672.181 220.000 402 181 E