Debt is outstanding forever-requires no principal payments

Assignment Help Financial Management

Reference no: EM13813496

You are a commercial real estate broker eager to sell an office building. An investor is interested but demands 30% on his equity investment. The building's selling price is $32 million, and it promises free cash flows of $3.5 million annually in perpetuity. Interest only financing is available at %9 interest; that is, the debt is outstanding forever and requires no principal payments. The tax rate is 35%. How much of the purchase price should the investor borrow to meet his goal?

Reference no: EM13813496

Questions Cloud

Cash for making a very lucrative investment : What issues would you discuss with a company that was thinking about cutting their dividend to provide more cash for making a very lucrative investment?

New alterative aircraft technology : Targaryen Aeronautics is exploring the possibility of making a significant purchase of a new alterative aircraft technology to add to their current fleet – a dragon. The purchase price of the dragon is expected to be $4,000,000 with additional shippi..

Calculate the times burden covered ratio : Calculate the times interest earned ratio for next year assuming the firm raises $40 million of new debt at an interest rate of %6 Calculate the times burden covered ratio for next year assuming annual sinking fund payments on the new debt will equa..

Net annual savings be if the service were adopted : Your firm has an average receipt size of $145. A bank has approached you concerning a lockbox service that will decrease your total collection time by one day. You typically receive 7,100 checks per day. The daily interest rate is 0.017 percent. What..

Debt is outstanding forever-requires no principal payments : You are a commercial real estate broker eager to sell an office building. An investor is interested but demands 30% on his equity investment. The building's selling price is $32 million, and it promises free cash flows of $3.5 million annually in per..

Treasury-bond futures contract-initial margin requiremet : You purchase a Treasury-bond futures contract with an initial margin requirement of 15% and a futures price of $114,550. The contract is traded on a $100,000 underlying par value bond. If the futures price falls to $107,300, what will be the percenta..

What would net annual savings be if service were adopted : Your firm has an average receipt size of $145. A bank has approached you concerning a lockbox service that will decrease your total collection time by one day. You typically receive 7,100 checks per day. The daily interest rate is 0.017 percent. The ..

Learning team project evaluation and control : Learning Team Project Evaluation and Control

Details the benefits and drawbacks of a postmortem review : Details the benefits and drawbacks of a postmortem review

User Account

All Pages