Instructions: Read the case setup. Populate the tables if helpful (you are NOT required to submit thetables nor this case setup) and answer the question(s) in the corresponding test in Blackboard.An investor is performing a financial analysis on a $65,000,000 (all-in acquisition price) apartmentbuilding.1. Calculate the expected IRR based on the following operating and resale cash flows:IRRPV TotalOperatingPV OperatingPV ResalePartition:Resale ValueCash FlowCash FlowCash FlowCash FlowYear 0-$65,000,000$$$Year 1$3,250,000$3,300,000$3,500,000Year 2Year 3$3,600,000$3,700,000Year 4Year 5$83,000,000Totals$17,350,000$83,000,000% Allocation%2. Partition the IRR. What % of the IRR is attributable to the property's operating cash flows, andwhat % is attributable to the property's resale?3. If the investor can deploy its capital into a comparable property that generates 85% of itsexpected IRR from its property resale, all else equal, which property should the investor chooseto invest in? Why?

1. Expected IRR = 9.85% based on the cash flows. 2. PV of Operating cash flows =13,118,065 PV of…

1. Calculate the expected IRR based on the following operating and resale cash flows: IRR PV Total Operating Cash Flow PV Operating Cash Flow PV Resale Partition: Resale Value Cash Flow Cash Flow -$65,000,000 $3,250,000 $3,300,000 $3,500,000 $3,600,000 $3,700,000 $17,350,000 % Allocation Year o Year 1 Year 2 Year 3 Year 4 Year 5 $83,000,000 Totals $83,000,000 2. Partition the IRR. What % of the IRR is attributable to the property's operating cash flows, and what % is attributable to the property's resale? 3. If the investor can deploy its capital into a comparable property that generates 85% of its expected IRR from its property resale, all else equal, which property should the investor choose to invest in? Why?

1. Calculate the expected IRR based on the following operating and resale cash flows: IRR PV Total Operating Cash Flow PV Operating Cash Flow PV Resale Partition: Resale Value Cash Flow Cash Flow -$65,000,000 $3,250,000 $3,300,000 $3,500,000 $3,600,000 $3,700,000 $17,350,000 % Allocation Year o Year 1 Year 2 Year 3 Year 4 Year 5 $83,000,000 Totals $83,000,000 2. Partition the IRR. What % of the IRR is attributable to the property's operating cash flows, and what % is attributable to the property's resale? 3. If the investor can deploy its capital into a comparable property that generates 85% of its expected IRR from its property resale, all else equal, which property should the investor choose to invest in? Why?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 52P

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