After-tax net present value-tax internal rate of return

Assignment Help Financial Management

Reference no: EM132020787

Assume that you are an investment analyst preparing an analysis of an investment

opportunity for a client. Your client is considering the acquisition of an apartment

complex from a developer at the point in time when the apartments are ready for

first occupancy. Your have developed the following information.

1) Number of units = 36

2) First year market rent per unit = $450 per month

3) Rent is projected to increase by 8% each year

4) Annual vacancy rate = 3% of PGI

5) Annual collection loss = 2% of PGI

6) Annual operating expense = 35% of EGI

7) Miscellaneous yearly income (parking and washers/dryers) = $800

8) Monthly miscellaneous income is expected to remain constant

9) Purchase price = $2,000,000

10) Estimated value of land = $500,000

11) Anticipated mortgage terms:

a) Loan to value ratio = .80

b) Interest rate = 6%

c) Years to maturity = 25

1 When you e-mail me the assignment, please make it clear what software package the assignment is in. I can usually access most types of files, if I know what it is in! If I have problems opening the file, I will contact you (so please keep a copy of the file!).

d) Points charged = 3

e) Prepayment penalty = 2% of outstanding balance

f) Level payment, fully amortized

g) Fixed interest rate, annual payments

12) Anticipated holding period = 4 years

13) Proportion by which property is expected to appreciate during the holding period -- 5% a year

14) Estimated selling expenses as proportion of future sales price = 5%

15) Marginal income tax rate for the client = 28%

16) It is assumed that the property is put into service on January 1st and sold on December 31st

17) Assume the client is "active" in the property management

18) It is assumed that the client has an adjusted gross income of $95,000 and has no other passive income not offset by other passive losses (for each year of the anticipated holding period)

19) Client's minimum required after tax rate of return on equity = 11%

Calculate:

a. The before-tax and after-tax cash flows for each year of the holding period and the before-tax and after-tax equity reversion.

b. For the first year of operation the:

(1) Overall (cap) rate of return

(2) Equity dividend rate

(3) Gross income multiplier

(4) Debt coverage ratio

c. The after-tax net present value and the after-tax internal rate of return.

d. Is this an investment that should be considered? Explain.

Reference no: EM132020787

Questions Cloud

Summarize the importance of keeping the account current : Summarize the importance of keeping the account current. List the areas you plan on updating once you obtain your degree. State why.

What would be the value at eight year mark for new system : What would be the value at the 8 year mark for the new system.

How the doctors information is positioned to make him : What types of information do you feel are missing? Why do you feel this is important from a marketing perspective?

Chance that the firm will go broke : If the firm is not bought by the large company, there is a 50% chance that the firm's stock value will stay the same, and a 50% chance that the firm will go

After-tax net present value-tax internal rate of return : The after-tax net present value and the after-tax internal rate of return. Is this an investment that should be considered? Explain.

Computers in the teaching and learning process : What are the advantages and disadvantages of computers in the teaching and learning process?

Discuss the measures of central tendency or variability : Simply reporting measures of central tendency or measures of variability will not tell the whole story. Using the following information.

Define a niche market : Define a niche market and what makes it so. Explain the segmentation strategy implemented by this organization.

Retain and attract great employees : If you were in charge of a business, what paid-time-off benefits would you implement to help retain and attract great employees?

User Account

All Pages