What is the total present value of the property

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The net operating income (NOI) for a small income property is expected to be $100,000 for the first year. Financing will be based on a 1.25 debt coverage ratio applied to the first year NOI, will have a 6 percent interest rate, and will be amortized over 20 years with monthly payments. The NOI will increase 5 percent per year after the first year. The investor expects to hold the property for five years. The resale price is estimated by applying the terminal capitalization rate approach, with the terminal capitalization rate of 8 percent. Investors require a 12 percent annual rate of return on equity (a.k.a. equity yield rate) for this type of property.

a) What is the present value of the equity interest in the property? Calculate and explain.

b) What is the implied equity dividend rate? Calculate and explain. What does this number mean?

c) What is the total present value of the property? Calculate and explain.

d) What is the implied going-in capitalization rate? Calculate and explain.

Reference no: EM131968562

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