Question 1 The Bayes Retail Outlet Park is for sale with an asking price of 28,939,650....

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Question 1 The Bayes Retail Outlet Park is for sale with an asking price of 28,939,650. It contains 50 units, 35 large units that rent for 5,150 per month and the remainder are smaller units which rent for 3,525 per month. The recent pandemic has put pressure on destination retail parks and consequently current vacancy rates are 10%. The Operating Expense Ratio, based on all operating expenses being fixed, for this property is 15%. a) Construct the year 1 Net Operating Income for this property and calculate its initial yield. If comparable retail outlet parks are currently selling at a 7.50% initial yield, does this property appear to be overpriced, underpriced, or about right? (10 Marks) b) You can obtain a loan for 55% of the purchase price with an interest rate including credit margin of 4.25%, a full amortisation period of 20 years and interest payments made monthly. Using this information, together with any further assumptions you deem necessary, calculate the following for this property and briefly discuss the implications of your solutions: Annual Debt Service; Mortgage Constant; Cash-on Cash return; Debt Service Cover Ratio; Breakeven Ratio. (20 Marks) c) If the lender requires a Debt Service Cover Ratio of 2.00 to approve the loan, will this property qualify? (5 Marks) d) Does this property exhibit positive, negative, or neutral gearing (leverage)? Which ratios and information would you use to confirm this? (5 Marks) e) Explain the difference between the Break-Even Ratio and the Debt Service Cover Ratio. Who might be interested in each and why? Comment on the relative attractions and risks to the parties involved as indicated by the combination of these ratios. (10 Marks) Clearly set out all your calculations, avoid the use of Goal Seek or Solver and cite all references you have relied on in producing your solution. Page 2 of 4 Question 1 The Bayes Retail Outlet Park is for sale with an asking price of 28,939,650. It contains 50 units, 35 large units that rent for 5,150 per month and the remainder are smaller units which rent for 3,525 per month. The recent pandemic has put pressure on destination retail parks and consequently current vacancy rates are 10%. The Operating Expense Ratio, based on all operating expenses being fixed, for this property is 15%. a) Construct the year 1 Net Operating Income for this property and calculate its initial yield. If comparable retail outlet parks are currently selling at a 7.50% initial yield, does this property appear to be overpriced, underpriced, or about right? (10 Marks) b) You can obtain a loan for 55% of the purchase price with an interest rate including credit margin of 4.25%, a full amortisation period of 20 years and interest payments made monthly. Using this information, together with any further assumptions you deem necessary, calculate the following for this property and briefly discuss the implications of your solutions: Annual Debt Service; Mortgage Constant; Cash-on Cash return; Debt Service Cover Ratio; Breakeven Ratio. (20 Marks) c) If the lender requires a Debt Service Cover Ratio of 2.00 to approve the loan, will this property qualify? (5 Marks) d) Does this property exhibit positive, negative, or neutral gearing (leverage)? Which ratios and information would you use to confirm this? (5 Marks) e) Explain the difference between the Break-Even Ratio and the Debt Service Cover Ratio. Who might be interested in each and why? Comment on the relative attractions and risks to the parties involved as indicated by the combination of these ratios. (10 Marks) Clearly set out all your calculations, avoid the use of Goal Seek or Solver and cite all references you have relied on in producing your solution. Page 2 of 4

Answer rating: 100% (QA)

Answer a Constructing the Year 1 Net Operating Income and Calculating the Initial Yield Rental Income 35 large units x 5150 per month x 12 months 2152... View the full answer