You are analyzing an investment opportunity with the following information Initial purchase price $450,000 Expected holding period 15 years NOI is estimated to be $36,000 year for the first seven years and increase to $42,000 year for the last 8 years Loan amount $400,000 (interest only) Monthly mortgage payment is $28,800 year Expected sale (assume no sale expenses) at the end of 15 years at the going out'' cap rate of 8 Outstanding loan balance at the end of 15 years $285,200 How much is the initial equity investment amount What are the before tax cash flows for year 2 and year 8 What are the Before Tax Cash Flows (BTCF) from operation for year 2 and year 8 (5 points) Year 2 Year 8 How much is the Before Tax Equity Reversion (BTER) (5 points) Sale Price Sale Expenses Net Sale Price Mortgage Debt BTER Fill out the timeline of the cash flows for this investment Be sure to include all cash inflows and outflows (i e , equity investment, BTCF and BTER), and be careful about their signs (10 points) Year o Year 1 7 Year 8 14 Year 15 If the discount rate is 12 , what is the NPV of the cash flows What is the IRR (10 points) Hint use the CF function in your financial calculator NPV IRR Should you make this investment (5 points)

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Posted on Oct 04, 2024

You are analyzing an investment opportunity with the following information: Initial purchase price: $450,000 Expected holding period: 15 years NOI is estimated to be $36,000/year

You are analyzing an investment opportunity with the following information:

Initial purchase price: $450,000
Expected holding period: 15 years
NOI is estimated to be $36,000/year for the first seven years and increase to $42,000/year for the last 8 years.
Loan amount: $400,000 (interest only)
Monthly mortgage payment is $28,800/year.
Expected sale (assume no sale expenses) at the end of 15 years at the ``going-out'' cap rate of 8%
Outstanding loan balance at the end of 15 years: $285,200

How much is the initial equity investment amount?

What are the before-tax cash flows for year 2 and year 8? image text in transcribed

What are the Before-Tax Cash Flows (BTCF) from operation for year 2 and year 8? (5 points) Year 2 Year 8 How much is the Before-Tax Equity Reversion (BTER)? (5 points) Sale Price Sale Expenses Net Sale Price Mortgage Debt BTER Fill out the timeline of the cash flows for this investment. Be sure to include all cash inflows and outflows (i.e., equity investment, BTCF and BTER), and be careful about their signs. (10 points) Year o Year 1-7 Year 8 - 14 Year 15 If the discount rate is 12%, what is the NPV of the cash flows? What is the IRR? (10 points) Hint: use the CF function in your financial calculator. NPV IRR Should you make this investment? (5 points)