How does the package change

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Reference no: EM132068030

Qusetion: Ralph is a real estate broker wanting to sell an office building in a shopping center. Jeff, an investor, has expressed an interest in buying the property, but demands a 20 percentage return on his equity investment. Finally, the selling price of the building is dollar 25 million and it is expected to generate free cash flows of dollar 3 million per year in perpetuity. Further, interest-only financing is available at 8 percent interest (in other words, the debt is outstanding forever, and therefore requires no principal payments). Finally, assume that the tax rate is 50 dollar.

Please recommend an investment-financing package that meets the investor's target return.

How does this package change if the investor's target return is 90 percentage return on equity?

Finally, why would an investor accept 20 percentage if he she could get as high as 90 percentage?

Reference no: EM132068030

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