Question
Use the following cash flow and additional information to answer questions 6-8. We have been asked to value a warehouse in Norfolk. Based on our
Use the following cash flow and additional information to answer questions 6-8.
We have been asked to value a warehouse in Norfolk. Based on our market research, we have developed the following cash flow. Based on the same research, we have determine that should use a 5-year holding period (investment horizon). A reasonable yield rate (aka internal rate of return IRR) is 11%. A reasonable terminal capitalization rate (reversion cap rate rate of return applied to determine the resale) is 9%. There are no deductions for the cost of reselling the property.
Year | 1 | 2 | 3 | 4 | 5 | 6 |
PGI | $10,000 | $10,300 | $10,609 | $10,927 | $11,255 | $11,593 |
Vac & Coll Loss | $ (500) | $ (515) | $ (530) | $ (546) | $ (563) | $ (580) |
EGI | $9,500 | $9,785 | $10,079 | $10,381 | $10,692 | $11,013 |
Expenses | $3,800 | $3,914 | $4,031 | $4,152 | $4,277 | $4,405 |
NOI | $5,700 | $5,871 | $6,047 | $6,229 | $6,415 | $6,608 |
What is the assumed vacancy and collection loss as a percentage?
a. | 5% | |
b. | 95% | |
c. | 40% | |
d. | 60% |
The value of the property at the end of year 5 is $64,722.
True
False
The present value of the property rounded the nearest hundred dollars is $65,800.
True
False
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