Q1.1 Assuming that Mortgage A is selected, calculate the levered cost of equity. Q1.2 Assuming that Mortgage B is selected, calcualted the levered cost of equity.

General Information:

You are intereested in a building costing 10,000,000.You can either finance the purchase of the building using either: Both 5 year terms.

> Mortgage A and a 40% loan-to-value ratio. Interest rate 5%,compounded annually, paid annually.

> Mortgage B and a 50% loan- to value ratio. Interest rate 5%, compounded annually, paid annually.

Futher details regarding the mortgages are provided in Table 1.You require an 8% retrun on unlevered equity investment.You anticipate receiing 1,000,000 in rental income at the end of every year for five years. You plan to sell the buiding after fiver years for 11,000,000.

Answer Template		1.1	1.2
		Mortgage A	Mortgage B
Levered cost of equity		0%	0%
Unlevered cost of equity
Loan-to-value ratio
Cost of debt

Question 2

Q2.1 Assuming that Mortgage A is selected, calculate the NPV of the investment. Use the COE calculated in 1.1 as the approrpriate discount rate. Round your calculated answer to the nearest pound.

Q2.1 Assuming the Mortgage B is selected, calculate the NPV of the investment. Use the COE that you calculated in Quest 1.2 as the appropraite discount rate. Round your answer.

Q2.3 based on your answers in 2.1 and 2.2, which mortage you would choose. Limit your answer to 50 words.

Q2.4 Now, assume that the NPV of the investment is identical with eiither mortgage. What would the advatange be of opting for Mortgage A? Justify your answer, 100 word limit.