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The asking price for a suburban office building is $5,000,000; rents are estimated at $550,000 during the first year and are expected to grow at 2 percent per year thereafter. Vacancies and collection losses are expected to be 6 percent of rents. Operating expenses will be 35 percent of effective gross income. A 65% LTV loan can be obtained at 7.5 percent interest for 10 years (assume payment and interest is calculated on an annual basis, and the loan is fully amortizing over a 30 year period). The property is expected to appreciate in value at 3 percent per year and the holding period is expected to be five years. Selling expenses are estimated at 7% of the sales price. Assume the appropriate income tax rate is 25%, the rate of depreciation recapture is 25%, and the capital gain tax rate is 15%. The value of the improvements is estimated at 60% of the purchase price by an appraiser. Answer the following questions a) Calculate the effective gross income (EGI) and the net operating income (NOI) for each of the five years. b) Calculate the total debt service, interest payment, and amortization in each of the five years? c) Calculate the taxes due on the sale of the property. d) Calculate the after-tax internal rate of return on this investment. If the investor’s (after-tax) opportunity cost of capital is 10%, should she go ahead with this investment?
Assuming you expect slower economic growth than the average investor, and assuming you also forecast annual inflation of 1.5% over the next 30 years, explain whether stock investments are likely to perform well in that environment.
Determine the average monthly cost of servicing the typical student's demand deposit account, which generates 27 withdrawals (15 electronic), two transit checks deposited, two transit checks cashed, two deposits (one electronic), and one on us check ..
1. What is law and why is it necessary? 2. Explain the difference between the following pairs:
Abe and Jan are well to do and are concerned that the estate tax exemption of $10,500,000 (combined) will not be sufficient to avoid estate taxes. The have 3 married children and 7 grandchildren. They would like to give about $300,000 per year to the..
Keyser Materials has 8 percent coupon bonds on the market with 19 years to maturity. The bonds make semiannual payments and currently sell for 102 percent of par. What is the current yield on Keyser Materials bonds? The YTM? The effective annual yiel..
Shawna just turned 21 and currently has no investments. She plans to invest $5,500 at the end of each of the next 8 years, starting with her 22nd birthday. The rate of return on her investment is 4% per year, compounded monthly. What will be the bala..
Union Local School District has a bond outstanding with a coupon rate of 8.09 percent paid semiannually and 5 year to maturity. The yield to maturity on this bond is 8.92 percent, and the bond has a par value of $5,000. What is the price of the bond?
Mouse Parts produces mouse ears, white gloves and other parts that are incorporated into the production of Mickey Mouse souvenirs. One of the components used in production has an annual demand of 250 units, and this is constant throughout the year. C..
Your client has been given a trust fund valued at $1.16 million. He cannot access the money until he turns 65 years old, which is in 25 years. At that time, he can withdraw $22,000 per month. If the trust fund is invested at a 4.5 percent rate, compo..
Duration of the need, Concern about the financial viability of the current insurer, Capacity of the policyholder to fund premiums, Cost of the premium compared to alternatives
An investment project has annual cash inflows of $4,600, $3,700, $4,900, and $4,100, for the next four years, respectively. The discount rate is 13 percent. What is the discounted payback period for these cash flows if the initial cost is $5,500?
What is the lump sum deposited today at 8% compounded qrtly for 10 years, will yeild the same amount if $4000 deposit with 6% interest end of 6 months compound simi annual, 10 years. What is the value of the lump sum?
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