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: Equity Investment $ 2,600,000 Cash Distributions from Operations to Equity Investors (After Management Fees) $ 80,000 80,000 80,000 Expected Sale Proceeds $ 3,600,000 Year 0 Year 1 Year 2 Year 3 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 investment? b. How much of the proceeds from property sales must the fund manager receive in order to earn its 25 percent promote? c. After the equity investors earn their 10 percent target return (IRR) and the fund manager earns the 25 percent promote, how much will be distributed to equity investors? Complete this question by entering your answers in the tabs below. Required A Required B Required C 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 investment? (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.) Cash flows to equity investors

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
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:
Equity
Investment
$ 2,600,000
Cash Distributions from Operations
to Equity Investors (After
Management Fees)
$ 80,000
80,000
80,000
Expected Sale
Proceeds
$ 3,600,000
Year 0
Year 1
Year 2
Year 3
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
investment?
b. How much of the proceeds from property sales must the fund manager receive in order to earn its 25 percent promote?
c. After the equity investors earn their 10 percent target return (IRR) and the fund manager earns the 25 percent promote, how much
will be distributed to equity investors?
Complete this question by entering your answers in the tabs below.
Required A
Required B Required C
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 investment? (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.)
Cash flows to equity investors
Transcribed Image Text: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: Equity Investment $ 2,600,000 Cash Distributions from Operations to Equity Investors (After Management Fees) $ 80,000 80,000 80,000 Expected Sale Proceeds $ 3,600,000 Year 0 Year 1 Year 2 Year 3 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 investment? b. How much of the proceeds from property sales must the fund manager receive in order to earn its 25 percent promote? c. After the equity investors earn their 10 percent target return (IRR) and the fund manager earns the 25 percent promote, how much will be distributed to equity investors? Complete this question by entering your answers in the tabs below. Required A Required B Required C 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 investment? (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.) Cash flows to equity investors
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education