Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The buildings in a certain warehouse market are characterized by net cash flow projections like the one shown in the following table, based on
The buildings in a certain warehouse market are characterized by net cash flow projections like the one shown in the following table, based on net leases of five years' duration. In this market, properties are typically evaluated using a going-in IRR of 10% (blended rate). You have the opportunity to purchase a property with these same typical cash flow projections at the typical going-in IRR. However, your building is entirely covered by a 10-year lease with a AAA credit tenant who can borrow money at 5%. Assuming that the appropriate inter-lease and resale discount rate is 13%, what is your NPV from this deal? Ten-year cash flow (millions) Year 1: 1 Year 2: 1 Year 3: 1.1 Year 4: 1.1 Year 5: 1.2 Year 6: 1.2 Year 7: 1.3 Year 8: 1.3 Year 9: 1.4 Year 10: 15.4 (1.4 net cash flow+14 resale)
Step by Step Solution
★★★★★
3.30 Rating (156 Votes )
There are 3 Steps involved in it
Step: 1
To calculate the Net Present Value NPV of this deal we need to discount each of the cash flows to th...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started