Ace Investment Company is considering the purchase of the Apartment Arms project. Next year’s NOI and cash flow is expected to be $2,000,000, and based on Ace’s economic forecast, market supply and demand and vacancy levels appear to be in balance. As a result, NOI should increase at 4 percent each year for the foreseeable future. Ace believes that it should earn at leasta 13 percent return on its investment.a. Assuming the above facts, what would the estimated value for the property be now?b. What “going-in” cap rates should be indicated from recently sold properties that are comparable to Apartment Arms?c. Assuming that in part (a) the required return changes to 12 percent, what would the value be now?d. Assume results in part (c). What should the investor now be observing regarding the price of “comparable” sales? What market forces may be accounting for the differences in value between (a) and (c)?

Consider two investment projects, both of which require an upfront investment of $10 million and pay a constant positive amount each year for the next 12 years. Under what conditions can you rank these projects by comparing their IRRS? (Select the best choice below.) A. Ranking by IRR will work in this case so long as the projects' cash flows do not decrease from year to year. B. Ranking by IRR will work in this case so long as the projects' cash flows do not increase from year to year. C. Ranking by IRR will work in this case so long as the projects have the same risk. D. There are no conditions under which you can use the IRR to rank projects.

You are considering the purchase of a small retail shopping complex that will generate netcash flows each of the next 20 years, starting at $500,000 in Year 1. You normallydemand a 12% rate of return on such investments. Future cash flows after year 1 areexpected to grow with inflation at 5% per year. How much would you be willing to payfor the complex today if it will have to be torn down in 20 years, and the land could besold for a net amount of $3 million in year 20?

You own a $1,000-par zero-coupon bond that has 5 years of remaining maturity.You plan on selling the bond in one year and believe that the required yield next year will have the following probability distribution in the table highlighted in yellow color.2a. What is your expected price when you sell the bond?2b. What is the standard deviation?

aa

Wavy Inc is examining a project that requires an initial investment of -10 million today.  This will be followed by several years of positive incremental after-tax cash flows.  However, during the last year of the project's life Wavy expects that the incremental cash flow will again be negative.  By which method should Wavy determine whether or not to invest? A) Both NPV or IRR are fine, as they must arrive at same investment decision B) IRR, because there will be no NPV solution in this case C) Neither NPV or IRR are useful in this situation D) NPV, since this project will have two IRRs

We are examining a new project. We expect to sell 6,000 units per year at $74 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $74 × 6,000 = $444,000. The relevant discount rate is 18 percent, and the initial investment required is $1,710,000. After the first year, the project can be dismantled and sold for $1,540,000. Suppose you think it is likely that expected sales will be revised upward to 9,000 units if the first year is a success and revised downward to 4,600 units if the first year is not a success.   a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the option to abandon? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

FastTrack​ Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $200,000 per year. Once in​ production, the bike is expected to make $300,000 per year for 10 years. Assume the cost of capital is 10%. a. Calculate the NPV of this investment​ opportunity, assuming all cash flows occur at the end of each year. Should the company make the​ investment? b. By how much must the cost of capital estimate deviate to change the​ decision? ​(Hint​: Use Excel to calculate the​ IRR.) c. What is the NPV of the investment if the cost of capital is 14%​? Note​: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not start until year 7.

Niagra Falls Power and Light is considering a project that will produce annual cash flows of $37,500, $46,200, $56,900, and $22,400 over the next four years, respectively. What is the internal rate of return if the project has an initial cost of $113,500?

You are interested in investing in an office building. You expect the building's net operating income will grow at a constant rate of 4.5% per year during your anticipated holding period. If you are confident that you can earn 10.7% annual return somewhere else on projects of comparable risk, the reasonable cap rate for you to use in evaluating this building should be %? Write your answer without %. E.g. if you answer is 21.5%, just write 21.5