Questions 32A-32J Your employer, Kent, LLC, is considering an investment in an office building that has the following cash flows:

Purchase in Year 0 $ -2,750,000

Year 1. 180,000

Year 2.. 276,000

Year 3.. 220,000

Year 4 239,000

Year 5 250,000, and a sale @ $3,190,000 takes place EOY 5

The companys weighted average cost of capital that they use as their discount rate for such calculations is 8%

32A. What is the projects IRR?

15.11%

10.38%

10.96%

16.12%

32B. For Kent LLC what is the NPV?

$344,814

$-168,158

$37,589

$490,401

32C. In the above problem, you might expect

The Yield to be higher than the discount rate because you sold the property at a profit.

The NPV to be positive because the IRR is higher than the discount rate

The NPV to be negative because the IRR is lower than the discount rate

All of the above

32D. The Dow Jones Industrial Average is made up of

10 companies

The largest 1,000 companies in the world

30 blue chip companies, not all of which are heavy industrial companies

100 companies with large cap market value

In the Kent LLC example above, assume that the company bought the office building using 70% mortgage debt at an interest rate of 4.00% over 240 months.

32E. What would be the monthly debt service on the office building?

$11,669

$9,544

$6,890

$1,877

32F. What would be the net cash flows after debt service in year 3 ?

$105,470

$79,972

$100,018

$2,980,000

32G. What would be the balance of the loan at the end of Year 5 ?

$1,240,000

$1,376,320

$1,290,300

$1,576,776

32H. What would be the total cash flows in Year 5, taking into consideration the cash flows, annual debt service, sale price and the balance on the loan at the EOY 5?

$1,662,985

$1,937,607

$1,723,196

$1,915,172

32I. What is the leveraged IRR of the project ?

32.15%

24.58%

21.48%

22.85%

32J. Using the companys hurdle rate (discount rate) for leveraged projects of 9.00%, what is the leveraged NPV of the project?

$ 577,943

$ 893,210

$ 591,450

$ 953,378