Question 6 Suppose that you are considering an investment in an apartment building. The specifics are: - The building is five years old, has a 80 percent occupancy rate, and has an expected useful life of 25 years. Assume that this occupancy rate is expected to continue for - There are 90 2-bedroom units, 100 1-bedroom units, and 70 studios. - The 2-bedroom units rent for $3000 per month, the 1-bedroom units for $2200 per month, and the studios for $1200 per month. Current rent control laws will prevent the rents from ever being raised. - The estimated annual maintenance cost for the building is $1200000 per year (this is independent of the number of apartments rented). - There is an additional estimated maintenance cost at $175 per unit per month, when each unit is rented. - There will be no salvage value to the building in 25 years, but it is estimated that it will cost 5 million dollars at that time to demolish the building as will be required in th are not purchasing the land. You will have a 25-year lease of the land, which is paid for in the purchase of the building.) - The asking price of the building is $32 million. The tax-rate is 30%, and assume the building will be fully depreciated over its useful life. - The WACC is 8%. Develop the pro-forma income statement, compute the Operating Cash-Flows and NPV. Analyze the situation where both rents and occupancy decline by 5%. Compute scenario (round to nearest $10,000). O ($3,820,000) 0 ($3,870,000) O ($3,670,000) O ($3,720,000) O ($3,770,000) Question 5 1 pts Suppose that you are considering an investment in an apartment building. The specifics are: The building is five years old, has a 85 percent occupancy rate, and has an expected useful life of 30 years. Assume that this occupancy rate is expected to continue for the life of the building. - There are 130 2-bedroom units, 150 1-bedroom units, and 90 studios. The 2-bedroom units rent for $5500 per month, the 1-bedroom units for $4000 per month, and the studios for $900 per month. - Current rent control laws will prevent the rents from ever being raised. - The estimated annual maintenance cost for the building is $1800000 per year (this is independent of the number of apartments rented). - There is an additional estimated maintenance cost at $145 per unit per month, when each unit is rented. - There will be no salvage value to the building in 30 years, but it is estimated that it will cost 5 million dollars at that time to demolish the building as will be required in the purchase contract. (You are not purchasing the land. You will have a 30-year lease of the land, which is paid for in the purchase of the building.) The asking price of the building is $80 million. - The tax-rate is 38%, and assume the building will be fully depreciated over its useful life. - The WACC is 8%. Develop the pro-forma income statement, compute the Operating Cash-Flows and NPV. What is the OCF breakeven for the project (roundup nearest unit)? 179 units: 48.4% occupancy O 239 units: 64.6% occupancy 209 units; 56.5% occupancy 269 units: 72.7% occupancy O 299 units: 80.8% occupancy Question 6 1 pts Suppose that you are considering an investment in an apartment building. The specifics are: - The building is five years old, has a 80 percent occupancy rate, and has an expected useful life of 25 years. Assume that this occupancy rate is expected to continue for the life of the building. - There are 90 2-bedroom units, 100 1-bedroom units, and 70 studios. - The 2-bedroom units rent for $3000 per month, the 1-bedroom units for $2200 per month, and the studios for $1200 per month. Current rent control laws will prevent the rents from ever being raised. - The estimated annual maintenance cost for the building is $1200000 per year (this is independent of the number of apartments rented). - There is an additional estimated maintenance cost at $175 per unit per month, when each unit is rented. - There will be no salvage value to the building in 25 years, but it is estimated that it will cost 5 million dollars at that time to demolish the building as will be required in the purchase contract. (You are not purchasing the land. You will have a 25-year lease of the land, which is paid for in the purchase of the building.) - The asking price of the building is $32 million. The tax-rate is 30%, and assume the building will be fully depreciated over its useful life. - The WACC is 8%. Develop the pro-forma income statement, compute the Operating Cash-Flows and NPV. Analyze the situation where both rents and occupancy decline by 5%. Compute the NPV for this new scenario (round to nearest $10,000). O ($3,820,000) 0 ($3,870,000) O ($3,670,000) O ($3,720,000) O ($3,770,000) Question 6 Suppose that you are considering an investment in an apartment building. The specifics are: - The building is five years old, has a 80 percent occupancy rate, and has an expected useful life of 25 years. Assume that this occupancy rate is expected to continue for - There are 90 2-bedroom units, 100 1-bedroom units, and 70 studios. - The 2-bedroom units rent for $3000 per month, the 1-bedroom units for $2200 per month, and the studios for $1200 per month. Current rent control laws will prevent the rents from ever being raised. - The estimated annual maintenance cost for the building is $1200000 per year (this is independent of the number of apartments rented). - There is an additional estimated maintenance cost at $175 per unit per month, when each unit is rented. - There will be no salvage value to the building in 25 years, but it is estimated that it will cost 5 million dollars at that time to demolish the building as will be required in th are not purchasing the land. You will have a 25-year lease of the land, which is paid for in the purchase of the building.) - The asking price of the building is $32 million. The tax-rate is 30%, and assume the building will be fully depreciated over its useful life. - The WACC is 8%. Develop the pro-forma income statement, compute the Operating Cash-Flows and NPV. Analyze the situation where both rents and occupancy decline by 5%. Compute scenario (round to nearest $10,000). O ($3,820,000) 0 ($3,870,000) O ($3,670,000) O ($3,720,000) O ($3,770,000) Question 5 1 pts Suppose that you are considering an investment in an apartment building. The specifics are: The building is five years old, has a 85 percent occupancy rate, and has an expected useful life of 30 years. Assume that this occupancy rate is expected to continue for the life of the building. - There are 130 2-bedroom units, 150 1-bedroom units, and 90 studios. The 2-bedroom units rent for $5500 per month, the 1-bedroom units for $4000 per month, and the studios for $900 per month. - Current rent control laws will prevent the rents from ever being raised. - The estimated annual maintenance cost for the building is $1800000 per year (this is independent of the number of apartments rented). - There is an additional estimated maintenance cost at $145 per unit per month, when each unit is rented. - There will be no salvage value to the building in 30 years, but it is estimated that it will cost 5 million dollars at that time to demolish the building as will be required in the purchase contract. (You are not purchasing the land. You will have a 30-year lease of the land, which is paid for in the purchase of the building.) The asking price of the building is $80 million. - The tax-rate is 38%, and assume the building will be fully depreciated over its useful life. - The WACC is 8%. Develop the pro-forma income statement, compute the Operating Cash-Flows and NPV. What is the OCF breakeven for the project (roundup nearest unit)? 179 units: 48.4% occupancy O 239 units: 64.6% occupancy 209 units; 56.5% occupancy 269 units: 72.7% occupancy O 299 units: 80.8% occupancy Question 6 1 pts Suppose that you are considering an investment in an apartment building. The specifics are: - The building is five years old, has a 80 percent occupancy rate, and has an expected useful life of 25 years. Assume that this occupancy rate is expected to continue for the life of the building. - There are 90 2-bedroom units, 100 1-bedroom units, and 70 studios. - The 2-bedroom units rent for $3000 per month, the 1-bedroom units for $2200 per month, and the studios for $1200 per month. Current rent control laws will prevent the rents from ever being raised. - The estimated annual maintenance cost for the building is $1200000 per year (this is independent of the number of apartments rented). - There is an additional estimated maintenance cost at $175 per unit per month, when each unit is rented. - There will be no salvage value to the building in 25 years, but it is estimated that it will cost 5 million dollars at that time to demolish the building as will be required in the purchase contract. (You are not purchasing the land. You will have a 25-year lease of the land, which is paid for in the purchase of the building.) - The asking price of the building is $32 million. The tax-rate is 30%, and assume the building will be fully depreciated over its useful life. - The WACC is 8%. Develop the pro-forma income statement, compute the Operating Cash-Flows and NPV. Analyze the situation where both rents and occupancy decline by 5%. Compute the NPV for this new scenario (round to nearest $10,000). O ($3,820,000) 0 ($3,870,000) O ($3,670,000) O ($3,720,000) O ($3,770,000)