What is the estimated current value of the office property

Assignment Help Finance Basics

Reference no: EM131958035

Question: A company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, it believes that next year's net operating income will be $100,000. It also believes that this cash flow will rise in the amount of $7,000 each year for the foreseeable future. It plans to own the property for 10 years, after which the property value will be determined using information on comparable properties' going-out cap rates. Based on a review of recent sales of properties that are now 10 years older than the subject property, the company has determined that terminal cap rates are in a range of 10 percent. The company believes that it should earn an internal rate of return (required return) of at least 12 percent.

What is the estimated current value of this office property? Calculate and explain.

What is the current, or "going-in," cap rate for this property? Calculate and explain.

What accounts for the difference between the cap rate in (b) and the 10 percent terminal cap rate? Explain in words.

Reference no: EM131958035

Questions Cloud

Calculate basic earning power and return on equity : Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital (ROIC).

How much should a share of stock in firm be worth : If the company expects similar results in the foreseeable future, how much should a share of stock in this firm be worth?

Examine three differences between dna and rna : Examine three differences between DNA and RNA then explain two main reasons why DNA is the most favorable molecule for genetic material.

Severe downward pressure on the value of these currencies : What do you think is the major factor that places such severe downward pressure on the value of these currencies?

What is the estimated current value of the office property : A company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, it believes that next.

Write a one-page response to any short story or poem : Write a 1,200-1,500 word comparison and contrast essay- Write a one-page response to any short story or poem you've read so far in the course

What is up-and-down weighted average cost of capital : The Up-and-Down company has a cost of equity of 12.2%, a cost of debt of 8.6%, and a marginal tax rate of 40%. The current market value of its debt.

What is the financial break-even point : A company is considering a 5-year project that opens a new product line and requires an initial outlay of $75,000. The assumed selling price is $93 per unit.

How much should each payment be : A company estimates that it will need $88.000 in 12 years to replace a computer If it establishes a sinking fund by making fixed monthly payments.

User Account

All Pages