1．An investor made the following purchase: §
Bought an office building for $500,000 using 90% financing. §
The borrowing cost was 10%. §
They received $29,000 at year-end from rentals. §
They sold the building for $520,000 at the end of the year. Assuming a flat tax rate on income and capital gains of 25% what was the return on equity? A) +10%. B) +6%. C) 0%. D) -3%. The correct answer was B) Equity = 500,000(0.10) = 50,000 Interest cost = 450,000 (0.10) = 45,000 Capital Gain = 520,000 - 500,000 = 20,000 ATCF = (Income + Capital Gain - Interest)(1 - tax rate) ATCF = (29,000 + 20,000 - 45,000)(1 - 0.25) = $3,000 ROE = ATCF / Equity = 3,000 / 50,000 = 0.06 or 6% 2.A real estate analysis estimates the market value of an income-producing property at $2,560,000. The annual gross potential rental income is $596,000, the annual property operating expenses and taxes are $178,800, and the annual vacancy and collection losses are $89,400. What capitalization rate was used by the analysis to assess the property at $2,560,000. A) 0.128. B) 0.1275. C) 0.129. D) 0.127. The correct answer was A)
| NOI |
| NOI | CAP | MV | 596,000 - 178,800 - 89,400 | = 0.128 | 2,560,000 |
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3.An investor purchases an office building for $2,500,000. He puts 10 percent down and finances the remainder at a 9 percent rate of interest. Calculate the first year’s after-tax cash flow for the investment using the following information: NOI | $243,000 | Depreciation | $25,000 | Annual mortgage payment | $218,000 | Marginal income tax rate | 28% |
A) $11,160. B) $0. C) $20,660. D) $18,000. The correct answer was C) The first year’s interest payment is the amount borrowed ($2,250,000) times the rate of interest (9%), which equals $202,500. After-tax net income, which is NOI minus depreciation minus interest, net of taxes, is ($243,000 - $25,000 - $202,500) × (1 - .28) = $11,160. After-tax cash flow is after-tax net income, plus depreciation and minus the principal component of the mortgage payment ($218,000-$202,500): $11,160 + $25,000 - $15,500 = $20,660. 4.An investor purchases a property for $1,000,000, financing 92 percent of the purchase price. He plans to sell the property four years later for $1,200,000. The expected net cash flows for the investment are as follows: Year 1 | $23,450 | Year 2 | $25,312 | Year 3 | $27,879 | Year 4 (net of mortgage payoff) | $261,450 |
Assuming a 9 percent cost of equity, the net present value (NPV) of the cash flows at the time the property is purchased is: A) $249,564. B) $338,091. C) $169,564. D) $258,091. The correct answer was C) The present value of the cash flows is: $23,450 / 1.09 + $25,312 / 1.092 + $27,879 / 1.093 + 261,450 / 1.094 = $249,563.83. The NPV is the present value of the cash flows minus the initial investment: $249,564 – $80,000 = $169,564. 5.A real estate speculator is considering an investment in a piece of raw land that will be developed. He expects to invest $150,000 in the land. It will not be developed for three years, but at the end of year 3, he expects a cash flow of $25,000. In years 4 and 5, the cash flow will increase to $35,000, and at the end of year 5 he expects to sell the land for $185,000. Due to the risky nature of the investment, he requires an 18 percent return. The net present value of this investment is closest to: A) $30,222. B) -$32,903. C) $13,046. D) -$20,568. The correct answer was D) CF0 = –150,000
CF1 = 0
CF2 = 0
CF3 = 25,000
CF4 = 35,000
CF5 = (35,000 + 185,000) = 220,000
I/Y = 18; Compute NPV = –$20,567.90 6.The internal rate of return (IRR) is closest to: A) 12.6%. B) 26.6%. C) 14.3%. D) 18.1%. The correct answer was C) CF0 = –150,000
CF1 = 0
CF2 = 0
CF3 = 25,000
CF4 = 35,000
CF5 = 220,000
Compute IRR = 14.3%. 7.Ron Biggs is considering a real estate investment. In the first year, the property is expected to generate revenue of $65,000. The expense in the first year is $25,000 and the depreciation allowance will be 2.6 percent of the $350,000 initial investment. Assuming all cash flows occur at the end of the year and Biggs expects to be in a 35 percent marginal tax bracket, the after-tax cash flow in year 1 is closest to: A) $20,085. B) $29,185. C) $30,900. D) $19,915. The correct answer was B) After-tax cash flow = (revenue – cost – depreciation)(1 – t) + depreciation.
Depreciation = 0.026 x $350,000 = $9,100.
CF = ($65,000 – $25,000 – $9,100)(1 – 0.35) + $9,100 = $29,185. |
发表于 2008-4-4 13:53
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