FIN 467 Assignment 1

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We can help for any change in values or Any Assignment related to FIN 467, just email us 1. If you purchase a parcel of land today for \$25,000, and you expect it to appreciate 10 percent per year in value, how much will your land be worth 10 years from now assuming annual compounding? 2. You are considering the purchase of a small income-producing property for \$150,000 that is expected to produce the following net cash flows. Year 1 Cash Flow \$50,000 Year 2 Cash Flow \$50,000 Year 3 Cash Flow \$50,000 Year 4 Cash Flow \$50,000 3. Assume your required internal rate of return on similar investments is 11 percent. What is the net present value of this investment opportunity? What is the going-in internal rate of return on this investment? Should you make the investment? An investor has projected three possible scenarios for a project as follows: Pessimistic—NOI will be \$200,000 the first year, and then decrease 2 percent per year over a five-year holding period. The property will sell for \$1.8 million after five years. Most likely—NOI will be level at \$200,000 per year for the next five years (level NOI) and the property will sell for \$2 million. Optimistic—NOI will be \$200,000 the first year and increase 3 percent per year over a five-year holding period. The property will then sell for \$2.2 million.

The asking price for the property is \$2 million. The investor thinks there is about a 30 percent probability for the pessimistic scenario, a 40 percent probability for the most likely scenario, and a 30 percent probability for the optimistic scenario. 1. Compute the IRR for each scenario.

FIN 467 Assignment 2

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We can help for any change in values or Any Assignment related to FIN 467, just email us B1. 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? 2. An office building is purchased with the following projected cash flows: â&#x20AC;˘ NOI is expected to be \$130,000 in year 1 with 5 percent annual increases.

• The purchase price of the property is \$720,000. • 100 percent equity financing is used to purchase the property. • The property is sold at the end of year 4 for \$860,000 with selling costs of 4 percent. • The required unlevered rate of return is 14 percent. a. Calculate the unlevered internal rate of return (IRR). b. Calculate the unlevered net present value (NPV).

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