Your client, a real estate company, is evaluating a real estate project of $15,000,000 that will provide
Question:
Your client, a real estate company, is evaluating a real estate project of $15,000,000 that will provide them with yearly NOI of $1,950,000 for the next 10 years and can then be resold for an amount estimated at $20,000,000. They can finance 70% of the purchase price through a 10-year mortgage with an amortization period of 25 years and an interest rate of 7%.
Your client will only proceed with the project if its returns are greater than his WACC or cost of equity. He provides you with the following information about his company:
Market value of equity | $50,000,000 |
Cost of equity | 25% |
Market value of debt | $75,000,000 |
Cost of debt | 10% |
Tax rate | 30% |
a) Calculate the unlevered NPV of this investment
Answer:
b) Calculate the unlevered IRR of this investment
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c) Calculate the levered NPV
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d) Calculate the levered IRR of this investment
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