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The following data, objectives, and constraints have been provided with respect to a proposed venture:

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1) The following data, objectives, and constraints have been provided with respect to a;proposed venture;Cost (including transaction costs) $3,200,000;Net leaseable area (square feet) 29,000;Financing specifications;a. Mortgage loan terms: 12 percent interest, 25 year monthly;amortization schedule, renegotiable after 10 years;b. Minimum acceptable current yield on equity funds: 6 percent;Operating forecast for first year;Market rent per square foot (based on analysis of comparable properties) $23.50;Vacancy rate (percent) 10;Operating expenses, per sq. ft. of leaseable area $9.50;If the minimum acceptable debt coverage ratio is 1.20 and the maximum loan-to-value;ratio is 70 percent, what is the maximum total investment (combined equity funds) that;will make the above proposal financially feasible?;2) If you recall (from Problem Set 2), Mr. Arnold Benedict is thinking of buying an;apartment complex that is offered for sale by the firm of Getabinder and Flee. The;price, $2.25 million, equals the property?s market value. Further, Mr. Benedict can;obtain a $1,500,000 loan with terms of interest at 8.5 percent per annum, level annual;payments, to amortize the loan over 20 years. There are no points or loan amortization;fees anticipated.;He has obtained the following estimates from an investment analyst for the BTCF and;ATCF (before and after-tax cash flows) for the five year holding period (as well as the;reconstructed income statement for period 0). In addition, he has the BTER and ATER;(before and after-tax equity reversion) for the property assuming it is sold at the end of;the 5 year holding period. This information is shown below (this is taken from the;solution for question #2 from Problem Set 2);Year 0 Year 1 Year 2 Year 3 Year 4 Year 5;PGI 315,000 322,875 330,947 339,221 347,701 356,394;- Vacancy 15,750 16,144 16,547 16,961 17,385 17,820;+ Misc Income 10,000 10,250 10,506 10,769 11,038 11,314;EGI 309,250 316,981 324,906 333,029 341,354 349,888;- Operating Exp 43,328 44,411 45,521 46,659 47,825 49,021;- M. Fee 15,463 15,849 16,245 16,651 17,068 17,494;- Property Taxes 71,400 71,400 71,400 76,048 76,048 76,048;NOI 179,059 185,321 191,740 193,671 200,413 207,325;- Debt Service 158,506 158,506 158,506 158,506 158,506;BTCF 26,815 33,234 35,165 41,907 48,819;NOI 185,321 191,740 193,671 200,413 207,325;- Interest 127,500 124,864 122,005 118,902 115,536;- Depreciation 62,730 65,448 65,448 65,448 62,730;- P. Penalty 0;- Discount Exp 0 0 0 0 0;Passive Income (4,909) 1,428 6,218 16,063 29,059;Pass Through 25,000 25,000 25,000 25,000 25,000;Other Passive 0 0 0 0 0;2NSP 2,384,238;- Adjusted Basis 1,928,196;Total Gain on Sale 456,042;- Depreciation Recovery 321,804;Capital Gain on Sale 134,238;S. Losses 0 0 0 0 0;Taxable Income (4,909) 1,428 6,218 16,063 29,059;x MTR.40.40.40.40.40;TAX (1,964) 571 2,487 6,425 11,624;BTCF 26,815 33,234 35,165 41,907 48,819;- TAX (1,964) 571 2,487 6,425 11,624;ATCF 28,779 32,663 32,678 35,482 37,195;ESP 2,591,563;- SE 207,325;NSP 2,384,238;- UMB 1,316,277;BTER 1,067,961;- TAX 100,587;ATER 967,374;Depreciation Recovery (DR) 321,804;x Dep Recovery Tax Rate (td;25;Depreciation Recovery Tax (DRT) 80,451;Capital Gains (CG) 134,238;x Capital Gains Tax Rate (tg;15;Capital Gains Tax (DRT) 20,136;Suspended Losses (SL) 0;x Marginal Tax Rate.40;Suspended Losses Recapture (SLR) 0;3Mr. Arnold Benedict has asked you to compute the following investment indicators and;further to advise him on whether he should purchase this property.;Please compute the following;a. Using the first-year operating forecast, compute;1) Gross income multiplier (using effective gross income);2) Net income multiplier;3) Operating ratio;4) Break even, or default, ratio;5) Debt coverage ratio;6) Overall capitalization rate;7) Equity dividend rate;8) Cash-on-cash return;b. Using a 9 percent rate, discount the expected after-tax cash flows from this;investment and determine;1) Net present value;2) Profitability index;3) Investment value;4) Internal rate of return;c. Should Arnold Benedict purchase this building (assuming his after-tax required;rate of return is 9 percent)? Explain why or why not.;Attachment Preview;class book.docx;www.BryteWave.com;This is the link of the online book. When you get into the website, click the...

 

Paper#21625 | Written in 18-Jul-2015

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