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You are considering the purchase of a quadruplex apartment building. Effective gross income during the first year of operations is expected to be $33,600 ($700 per month per unit). First-year operating expenses are expected to be $13,440 (at 40 percent of EGI). Ignore capital expenditures. The purchase price of the quadruplex is $200,000. The acquisition will be financed with $60,000 in equity and a $140,000 standard fixed-rate mortgage. The interest rate on the debt financing is 8 percent and the loan term is 30 years. Assume, for simplicity, that payments will be made annually and that there are no up-front financing costs.
a. What is the overall capitalization rate?
b. What is the effective gross income multiplier?
c. What is the equity dividend rate (the before-tax return on equity)?
d. What is the debt coverage ratio?
e. Assume the lender requires a minimum debt coverage ratio of 1.2. What is the largest loan that you could obtain if you decide that you want to borrow more than $140,000?
Adjusted basis in this investment is $78,400. Losses from prior years that were not deductible due to the passive activity loss restrictions total $86,240.
Briefly discuss how the liquidity preference theory explains the shape of the yield curve.
For each of these companies, what is the present value of the recurring net free cash flows (NFCF) and the terminal value (TV)?
what is this portfolio’s total risk if these two assets are uncorrelated (independent)?
Suppose you want to estimate the cost of equity for a private company in the food industry that has similarities to Hormel Foods (HRL), Tyson Foods (TSN) and Conagra Foods (CAG). Using the adjusted Close price calculate 35 monthly returns for each co..
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,340,000. The fixed asset falls into the three-year MACRS class (MACRS Table). What is the net cash flow of the project for the fol..
What is the purpose of tranching in securitization? I know it means setting different levels of priority to the bonds.
A convetible bond is sold with a conversion ratio of 40. Find the conversion Price on this bond.
What is the accounting break-even level of sales in terms of number of diamonds sold?
KADS, Inc., has spent $450,000 on research to develop a new computer game. The firm is planning to spend $250,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $55..
Calculate the amount of money he expects to have after ten veers.
Calculate the project’s NPV, IRR, the project's payback period, and the project's discounted payback period.
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