a. What will total fees be for Fund (A)? For Fund (B)? b. Would one of the fee structures cause the manager to want to hold the properties fonger before selling than the other fee structure? if so, which one?
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- Problem 23-1 An institutional investor is comparing management fees for two competing real estate investment funds. Both funds expect to begin operations and are accepting capital commitments. When the funds begin acquiring properties, capital calls will be made for capital contributions during the investment period. Fund A will charge a fee of 45 BP on capital committed and 60 BP on capital invested after the investment period ends. Fund B will charge a fee of 50 BP on capital committed and 55 BP on capital invested after the investment period ends. Both funds expect to have $500,000,000 in capital commitments when the fund commences operations and both project a five-year cycle for startup and acquisitions. Capital flows are expected as follows: Fund A Year 1 Year 2 Year 3 Year 4 Year 5 Fund B Year 1 Year 2 Year 3 Year 4 Year 5 Contributed Capital $ 200,000,000 300,000,000 Contributed Capital $ 300,000,000 200,000,000 Capital Returned $0 0 0 100,000,000 50,000,000 Capital Returned $0…An institutional investor is comparing management fees for two competing real estate investment funds. Both funds expect to begin operations and are accepting capital commitments. When the funds begin acquiring properties, capital calls will be made for capital contributions during the investment period. Fund A will charge a fee of 45 BP on capital committed and 60 BP on capital invested after the investment period ends. Fund B will charge a fee of 50 BP on capital committed and 55 BP on capital invested after the investment period ends. Both funds expect to have $506,000,000 in capital commitments when the fund commences operations and both project a five-year cycle for startup and acquisitions. Capital flows are expected as follows: Fund A Contributed Capital Capital Returned Invested Capital Year 1 $ 202,400,000 $ 0 $ 202,400,000 Year 2 303,600,000 0 506,000,000 Year 3 0 506,000,000 Year 4 101,200,000 404,800,000 Year 5 50,600,000 354,200,000 Fund B…An institutional investor is comparing management fees for two competing real estate investment funds. Both funds expect to begin operations and are accepting capital commitments. When the funds begin acquiring properties, capital calls will be made for capital contributions during the investment period. Fund A will charge a fee of 45 BP on capital committed and 60 BP on capital invested after the investment period ends. Fund B will charge a fee of 50 BP on capital committed and 55 BP on capital invested after the investment period ends. Both funds expect to have $506,000,000 in capital commitments when the fund commences operations and both project a five-year cycle for startup and acquisitions. Capital flows are expected as follows: Fund A Year 1 Year 2 Year 3 Year 4 Year 5 Fund B Year 1 Year 2 Year 3 Year 4 Year 5 Contributed Capital $ 202,400,000 303,600,000 Contributed Capital $ 303,600,000 202,400,000 Required A Fund A Fund B Capital Returned $0 0 0 Required B 101,200,000…
- All techniques: Decision among mutually exclusive investments Pound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and subsequent cash inflows associated with these projects are shown in the following table. Cash flows Project A $30,000 $10,000 Project B Project C Initial investment (CF) $60,000 $21,500 $70,000 $22,500 Cash inflows (CF), t= 1 to 5 a. Calculate the payback period for each project. The NPv of projeci C is 017.10|. (Rouna to tne nearesi cEnt.) c. The IRR of project A is %. (Round to two decimal places.) The IRR of project B is %. (Round to two decimal places.) The IRR of project C is %. (Round to two decimal places.) d. Which project would you recommend? (Select the best answer below.) O A. Project C OB. Project B OC. Project ANet Present Value Method, Present Value Index, and Analysis First United Bank Inc. is evaluating three capital investment projects using the net present value method. Relevant data related to the projects are summarized as follows: BranchOfficeExpansion ComputerSystemUpgrade ATMKioskExpansion Amount to be invested $787,317 $584,976 $298,035 Annual net cash flows: Year 1 391,000 278,000 164,000 Year 2 364,000 250,000 113,000 Year 3 332,000 222,000 82,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 10%,…Assume projects A and B are mutually exclusive. The respective cash flows for projects A and B are stated below: Project Year 0 Year 1 Year 2 Year 3 A $575,000 $373,000 $219,000 $185,000 $980,000 $395,000 $477,000 $339,000 If the discount rate, based on an investment of similar risk, is 10%, which of the projects should be accepted based on: (a) Payback period rule (b) NPV rule (c) IRR rule (d) Profitability Index criteria (10) (25) (15) (25) Note: Show your answers in tables and all calculations properly presented.
- Simple Investment Allocation Case: This year, 2022 ABM Company selected your team to manage their allotted budget amounting to 10 million pesos for investment diversification portfolio. Your team was assigned to handle the said account. Question: How would you allocate funds?ital investment committee of Iguana Inc. is considering two capital investments. The estimated ig income and net cash flows from each investment are as follows: Year Robotic Assembler ng Income Robotic Assembler Net Cash Flow Warehouse Operating Income Warehouse Net Cash 35,000 $65,000 $21,000 $ 25,000 55,000 21,000 51,000 3 20,000 50,000 21,000 51,000 4 15,000 45,000 21,000 51,000 5 10,000 40,000 21,000 51,000 05,000 $255,000 $105,000 $255,000 Each project requires an investment of $150,000. Straight-line ation will be used, and no residual value is expected. The committee has selected a rate of 12% for s of the net present value analysis. Present Value of $1 at Compound Interest Year 12% 15% 20% 10.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.68: d: 1a. Compute the average rate of return for each investment. If required, round your answer to one place. Investment Committee Average Rate of Return Robotic Assembler % Warehouse %…ducation.com/ext/map/index.html?_con=con&external_browser=0&launchUrl=https%253A%252F%252Flms.mheducation.com%252 Saved Labeau Products, Ltd., of Perth, Australia, has $35,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: Invest Invest in in Project Project Y Investment required Annual cash inflows $ 35,000 $ 35,000 $ 12,000 Single cash inflow at the end of 6 years Life of the project $ 90,000 6 years 6 years The company's discount rate is 18%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. ences Required: 1. Compute the net present value of Project X. 2. Compute the net present value of Project Y. 3. Which project would you recommend the company accept? Complete this question by entering your answers in the tabs below. Required Required 3 Required 2 Required 1 Compute the net present value of Project X. (Round your final answer to the nearest whole dollar amount.) Net…
- Daymore plc is currently considering three investment opportunities. The following is the details of the investments:-Project A:-1. initial outlay $80m2. Future net inflows Year 1: $190mYear 2: $10mProject B:-1. initial outlay $140m2. Future net inflows Year 1: $180mYear 2: $120mProject C:-1. initial outlay $90m2. Future net inflows Year 1: $10mYear 2: $220mThe company has a capital budget that is restricted in the year of the investment and it will not be possible to undertake all three projects in full. The investment opportunities are independent of one another and each project is divisible (that is, it is possible to undertake part of an investment and to receive a pro-rata return). The cost of capital of the company is 12% and the company uses the net present value method of investment appraisal.Required:Calculate and determine the ranking of the three investment opportunities? (The ranking for the first choice, second choice, and third choice is 1, 2, and 3 respectively). Show…The capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Year Robotic AssemblerOperating Income Robotic AssemblerNet Cash Flow WarehouseOperating Income WarehouseNet Cash Flow 1 $35,000 $65,000 $21,000 $51,000 2 25,000 55,000 21,000 51,000 3 20,000 50,000 21,000 51,000 4 15,000 45,000 21,000 51,000 5 10,000 40,000 21,000 51,000 Total $105,000 $255,000 $105,000 $255,000 Each project requires an investment of $150,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis. Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627…Problem 23-2 A closed-end, commingled opportunity fund is being created with an expected three-year life. It expects to acquire properties that it expects to turnaround and sell at the end of three years for a gain. It also plans a minimum target return of 10 percent to investors, which will be based on cash distributions from operations and from the sale of properties at the end of the life of the fund. The opportunity fund manager expects to receive a promote equal to 25 percent of cash flows remaining after sale of the assets and after equity investors receive their minimum 10 percent target return. Cash flows are expected as follows: Year 0 Year 1 Year 2 Year 3 Equity Investment $3,000,000 Cash Distributions from Operations to Equity Investors (After Management Fees) Required A $ 100,000 100,000 100,000 Required: a What must be the cash flows to equity investors at the end of year 3 in order to achieve their total target 10 percent return on equity Expected Sale Proceeds…
