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You are asked to value a large building in northern New Jersey. The valuation is needed for a bankruptcy settlement. Here are the facts: The settlement requires that the building's value equal the PV of the net cash proceeds the railroad would receive if it cleared the building and sold it for its highest and best nonrailroad use, which is as a warehouse. The building has been appraised at $1.85 million. This figure is based on actual recent selling prices of a sample of similar New Jersey buildings used as, or available for use as, warehouses. If rented today as a warehouse, the building could generate $148,000 per year. This cash flow is calculated after out-of-pocket operating expenses and after real estate taxes of $67,000 per year: Gross rents $307,500 Operating expenses 92,500 Real estate taxes 67,000 Net $ 148,000 Gross rents, operating expenses, and real estate taxes are uncertain but are expected to grow with inflation. However, it would take one year and $370,000 to clear out the railroad equipment and prepare the building for use as a warehouse. The $370,000 would have to be invested immediately. The property will be put on the market when ready for use as a warehouse. Your real estate adviser says that properties of this type take, on average, one year to sell after they are put on the market. However, the railroad could rent the building as a warehouse while waiting for it to sell. The opportunity cost of capital for investment in real estate is 7% in real terms. Your real estate adviser notes that selling prices of comparable buildings in northern New Jersey have declined, in real terms, at an average rate of 2.3% per year over the last 10 years. A 6% sales commission would be paid by the railroad at the time of the sale. The railroad pays no income taxes. It would have to pay property taxes. What value should be assigned to the building? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Building value $_________
Determine a fair price for a two-year assetor-nothing option with exercise price of 120.- calculate your profit if the asset price at expiration is (1) 138 and (2) 114.
Your buddy comes to you with a sure-fire way to make some quick money and help pay off your student loans. His idea is to sell T-shirts with the words “I get” on them. “You get it?” What is the accounting break-even point if each shirt costs $5.20 to..
LKD Co. has 10 percent coupon bonds with a YTM of 8.6 percent. the current yield on these bonds is 9.2 percent. How many years do these bonds have left until they mature?
Which of the following should be taken into consideration when assessing the quality of a fund's manager?
Depreciation is calculated according to 5-year MACRS, and the firm's tax rate is 42%. What is the IRR of the project?
In a Word document, respond to the following. Number your responses 1-3. Explain the concept of cash flow in corporate finance. Explain how present value and future values are related
Ashes Divide Corporation has bonds on the market with 19 years to maturity, a YTM of 6.4 percent, and a current price of $1,206.50. The bonds make semiannual payments. What must the coupon rate be on these bonds?
Assume that the risk free rate is 6% and the required rate of return on the market is 13%. What is the required rate of return for Sears, which has a beta of 2.0? What is the required return for the overall stock market?
Larry sets up a fund in which the $100 dividend from his Johnson and Johnson stock is deposited at the end of each quarter.
Using a hypothetical situation, make calculations to assist in retirement planning (e.g., determine stream of savings necessary for certain standard of retirement). Calculate the stream of expenses possible with the assumed income.
An investor is considering the purchase of 10-year U.S. Treasury bonds and plans to hold them to maturity. Federal taxes on coupons must be paid during the year they are received, and tax must also be paid on the capital gain realized at maturity (de..
Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $40,000 has today. How much mus..
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