ABC Incorporated manufactures the best products in town. Because the business is thriving several departments need an investment of additional resources to accommodate their expanding needs. The management at ABC must decide which investment is the best option for the company. ABC uses a 12% discount rate in evaluating capital investments. ABC uses straight-line depreciation. The average reported operating income for the company is $1, 630,500. The options are enumerated below. Option 1: Purchase a new machine for the Production Department for $550,000. The machine will increase productivity by 6% and all of the additional units manufactured can be sold. The cost of the machine is $550,000 and it has a 10-year life. The net cash inflow is expected to be $127,000 each year for 10 years.

You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,360,000; rents are estimated at $174,080 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 6 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold.   Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor’s expected before-tax internal rate of return on equity invested (BTIRR)? d.…

You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,280,000; rents are estimated at $163,840 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 8 percent interest for 30 years (total annual payments will be monthly payments 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)? d. What is…

You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,290,000; rents are estimated at $165,120 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 7 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold.   Required: a. What is the first-year debt coverage ratio? Answer: 1.33 b. What is the terminal capitalization rate? c. What is the investor’s expected before-tax internal rate of return on equity invested…