Athena Investment Company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, Athena believes that next year’s cash flow will be $100,000. It also believes that the cash flow will rise in the amount of $5,400 each year for the foreseeable future. It plans to own the property for at least 10 years. Based on a review of sales of properties that are now 10 years older than the subject property, Athena has determined that cap rates are in a range of 0.10. Athena believes that it should earn an IRR (required return) of at least 11 percent. Required: a. What is the estimated value of this office property (assume a 0.10 terminal cap rate)? b. What is the current, or going-in, cap rate for this property?
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Athena Investment Company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, Athena believes that next year’s cash flow will be $100,000. It also believes that the cash flow will rise in the amount of $5,400 each year for the foreseeable future. It plans to own the property for at least 10 years. Based on a review of sales of properties that are now 10 years older than the subject property, Athena has determined that cap rates are in a range of 0.10. Athena believes that it should earn an
Required:
a. What is the estimated value of this office property (assume a 0.10 terminal cap rate)?
b. What is the current, or going-in, cap rate for this property?
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- Athena Investment Company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, Athena believes that next year’s cash flow will be $100,000. It also believes that the cash flow will rise in the amount of $7,000 each year for the foreseeable future. It plans to own the property for at least 10 years. Based on a review of sales of properties that are now 10 years older than the subject property, Athena has determined that cap rates are in a range of .10. Athena believes that it should earn an IRR (required return) of at least 12 percent.a. What is the estimated value of this office property (assume a .10 terminal cap rate)?b. What is the current, or “going-in,” cap rate for this property?c. What accounts for the difference between the cap rate in (b) and the .10 terminal cap rate in (a)?d. What assumptions are being made regarding future economic conditions when using current comparable sales to estimate terminal cap…Athena Investment Company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, Athena believes that next year’s cash flow will be $100,000. It also believes that the cash flow will rise in the amount of $6,400 each year for the foreseeable future. It plans to own the property for at least 10 years. Based on a review of sales of properties that are now 10 years older than the subject property, Athena has determined that cap rates are in a range of 0.10. Athena believes that it should earn an IRR (required return) of at least 11 percent. Required: a. What is the estimated value of this office property (assume a 0.10 terminal cap rate)? b. What is the current, or going-in, cap rate for this property?An investor is considering the acquisition of a "distressed property" which is on Northlake Bank's REO list. The property is available for $200,800 and the investor estimates that he can borrow $160,000 at 4.5 percent interest and that the property will require the following total expenditures during the next year: Inspection Title search Renovation Landscaping Loan interest Insurance Property taxes Selling expenses Required: a. The investor is wondering what such a property must sell for after one year in order to earn a 20 percent return (IRR) on equity. b. The lender is now concerned that if the property does not sell, investor may have to carry the property for one additional year. He believes that he could rent it (starting in year 2) and realize a net cash flow before debt service of $1,440 per month. However, he would have to make an additional $7,440 in interest payments on his loan during that time, and then sell. What would the price have to be at the end of year 2 in order…
- Please show in excel with formulas. Athena Investment Company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, Athena believes that next year’s cash flow will be $100,000. It also believes that the cash flow will rise in the amount of $7,800 each year for the foreseeable future. It plans to own the property for at least 10 years. Based on a review of sales of properties that are now 10 years older than the subject property, Athena has determined that cap rates are in a range of 0.10. Athena believes that it should earn an IRR (required return) of at least 11 percent. Required: a. What is the estimated value of this office property (assume a 0.10 terminal cap rate)? b. What is the current, or going-in, cap rate for this property?RKE & Associates is considering the purchase of a building it currently leases for $30,000 per year. The owner of the building put it up for sale at a price of $180,000, but because the firm has been a good tenant, the owner offered to sell it to RKE for a cash price of $160,000 now. If purchased now, how long will it be before the company recovers its investment at an interest rate of 15.00% per year? Solve by using the NPER function. The company will recover its investment in years.Athena Investment Company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, Athena believes that next year’s cash flow will be $100,000. It also believes that the cash flow will rise in the amount of $5,000 each year for the foreseeable future. It plans to own the property for at least 10 years. Athena believes that it should earn a return (r) of at least 11 percent. Athena estimates the value of the property today to be $1,224,808. What is the current, or going-in, cap rate for this property? A. 11.05% B. 10.49% C. 8.57% D. 8.16%
- An investor is considering the purchase of a small office building. The NOI is expected to be the following: year 1, $200,000; year 2, $210,000; year 3, $220,000; year 4, $230,000; year 5, $240,000. The property will be sold at the end of year 5 and the investor believes that the property value should have appreciated at a rate of 3 percent per year during the five-year period. The investor plans to pay all cash for the property and wants to earn a 10 percent return on investment (IRR) compounded annually. a. What should be the property value (REV) at the end of year 5 in order for the investor to earn the 10% IRR? b. What should be the present value of the property today? c. Based on your answer in (b), if the building could be reproduced for $2,300,000 today, what would be the underlying value of the land? O $3,420,843; $2,950,850; $650,850 O $3,528,887; $2,590,850; $725.250 O $3,720.786; $2,476,180; $665.450Blossom Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.95 million. This investment will consist of $2.60 million for land and $9.35 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.20 million, which is $2.25 million above book value. The farm is expected to produce revenue of $2.05 million each year, and annual cash flow from operations equals $1.95 million. The marginal tax rate is 25 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, e.g. 5,275.25.) NPV $ The project should b accepted rejectedConcord Pacific is considering purchasing a small residential building in Abbotsford that will cost $1,700,000 and will require $120,000 in renovations immediately. Revenue from rent is estimated to be $500,000 a year. Expenses are estimated to be $200,000 a year. They plant to keep the building for 6 years and estimates they will be able to sell the building for $2,200,000 at the end of 6 years. Assume expenses occur at the beginning of the year and revenue at the end of the year. Concord wants to earn at least 18% per year. Concord has calculated the NPV of this project is -$81,683.54. To encourage businesses to invest, the provincial government is considering giving Concord a one-time tax credit payable at the end of 2 years. How large of a tax credit does Concord require if they want to earn at a minimum of 18% per year?
- Blossom Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.80 million. This investment will consist of $2.00 million for land and $9.80 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.00 million, which is $2.00 million above book value. The farm is expected to produce revenue of $2.00 million each year, and annual cash flow from operations equals $1.90 million. The marginal tax rate is 25 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, e.g. 5,275.25.) NPV $ The project should beCrane Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.85 million. This investment will consist of $2.70 million for land and $9.15 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.05 million, which is $2.50 million above book value. The farm is expected to produce revenue of $2.00 million each year, and annual cash flow from operations equals $1.80 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, e.g. 15.25.) NPV The project should beCrane Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.10 million. This investment will consist of $2.65 million for land and $9.45 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.15 million, which is $2.20 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $2.00 million. The marginal tax rate is 25 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, e.g. 5,275.25.) NPV LA