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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 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 the before-tax and after-tax cash flows for each year of the holding period and the before-tax and after-tax equity reversion.
Why do you think that Le Rozier SA established the subsidiary in China instead of Japan? Assume no major country risk barriers.
You have just been made a valuation analyst. Before you get training (what else is new!), your boss asks you to value a number of items: 1) a publicly-traded company; 2) a family business; 3) a shopping center; 4) an oil refinery; 5) a patent or trad..
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $910,000. This cost will be depreciated straight-line to zero over the project’s seven-year life, at the end of which the sausage system can be scrapped for $105,000. The s..
From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on noncustomers, who make $14 million in withdrawals from other banks’ ATM machines. What would be the f..
An investor has been offered a choice of two loans for the purchase of a building.
Assume that r* = 1.0%; the maturity risk premium is found as MRP = 0.1%(t - 1) where t = years to maturity; the default risk premium for Corporate bonds is found as DRP = 0.06% (t - 1); the liquidity premium is 0.80% for corporate bonds; and inflatio..
The 12.21 percent coupon bonds of the Peterson Co. are selling for $900.05. The bonds mature in 5 years and pay interest semi-annually. These bonds have current yield of _____ percent
you are considering an opportunity to offer delivery services to your customers. what is the value of this service in today's dollars?
Calculate the indicated ratios for Happy Hamburger.- Discuss Happy Hamburger's strengths and weaknesses as revealed by your analysis.
Which of the following statements regarding operating and cash cycles is true?
What was the standard deviation of Crash-n-Burn’s returns over this period? What was the variance of Crash-n-Burn’s returns over this period?
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