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LOS f, (Part 3): Calculate the after-tax cash flows, net present value, and yield of a real estate investment.
Q1. 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) 0.1275.
B) 0.1290.
C) 0.1280.
Q2. 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) +6%.
B) -3%.
C) +10%.
Q3. 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) $30,900.
B) $29,185.
C) $20,085.
Q4. 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% return.
The net present value of this investment is closest to:
A) -$32,903.
B) $30,222.
C) -$20,568.
Q5. The internal rate of return (IRR) is closest to:
A) 14.3%.
B) 12.6%.
C) 18.1%.
Q6. An investor purchases a property for $1,000,000, financing 92% 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:
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Year 1 |
$23,450 |
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Year 2 |
$25,312 |
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Year 3 |
$27,879 |
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Year 4 (net of mortgage payoff) |
$261,450 |
Assuming a 9% cost of equity, the net present value (NPV) of the cash flows at the time the property is purchased is:
A) $338,091.
B) $169,564.
C) $249,564.
Q7. 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:
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NOI |
$243,000 |
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Depreciation |
$25,000 |
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Annual mortgage payment |
$218,000 |
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Marginal income tax rate |
28% |
A) $11,160.
B) $18,000.
C) $20,660.
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发表于 2009-2-28 17:21
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