Athena Investment Company is considering the purchase of an office property. After a careful review of the market and theleases that are in place, Athena believes that next year's cash flow will be $100,000. It also believes that the cash flow willrise in the amount of $6,400 each year for the foreseeable future. It plans to own the property for at least 10 years. Basedon a review of sales of properties that are now 10 years older than the subject property, Athena has determined that caprates are in a range of 0.10. Athena believes that it should earn an IRR (required return) of at least 11 percent.Required:a. What is the estimated value of this office property (assume a 0.10 terminal cap rate)?b. What is the current, or going-in, cap rate for this property?

Cap rate is known as the capitalization rate which is used for evaluating the real estate investment…

Answered: Athena Investment Company is…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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Athena Investment Company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, Athena believes that next year’s cash flow will be $100,000. It also believes that the cash flow will rise in the amount of $7,000 each year for the foreseeable future. It plans to own the property for at least 10 years. Based on a review of sales of properties that are now 10 years older than the subject property, Athena has determined that cap rates are in a range of .10. Athena believes that it should earn an IRR (required return) of at least 12 percent.a. What is the estimated value of this office property (assume a .10 terminal cap rate)?b. What is the current, or “going-in,” cap rate for this property?c. What accounts for the difference between the cap rate in (b) and the .10 terminal cap rate in (a)?d. What assumptions are being made regarding future economic conditions when using current comparable sales to estimate terminal cap…
Athena Investment Company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, Athena believes that next year’s cash flow will be $100,000. It also believes that the cash flow will rise in the amount of $5,000 each year for the foreseeable future. It plans to own the property for at least 10 years. Athena believes that it should earn a return (r) of at least 11 percent. Athena estimates the value of the property today to be $1,224,808. What is the current, or going-in, cap rate for this property? A. 11.05% B. 10.49% C. 8.57% D. 8.16%
An investor is considering the purchase of a small office building. The NOI is expected to be the following: year 1, $200,000; year 2, $210,000; year 3, $220,000; year 4, $230,000; year 5, $240,000. The property will be sold at the end of year 5 and the investor believes that the property value should have appreciated at a rate of 3 percent per year during the five-year period. The investor plans to pay all cash for the property and wants to earn a 10 percent return on investment (IRR) compounded annually. a. What should be the property value (REV) at the end of year 5 in order for the investor to earn the 10% IRR? b. What should be the present value of the property today? c. Based on your answer in (b), if the building could be reproduced for $2,300,000 today, what would be the underlying value of the land? O $3,420,843; $2,950,850; $650,850 O $3,528,887; $2,590,850; $725.250 O $3,720.786; $2,476,180; $665.450
Please show in excel with formulas. Athena Investment Company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, Athena believes that next year’s cash flow will be $100,000. It also believes that the cash flow will rise in the amount of $7,800 each year for the foreseeable future. It plans to own the property for at least 10 years. Based on a review of sales of properties that are now 10 years older than the subject property, Athena has determined that cap rates are in a range of 0.10. Athena believes that it should earn an IRR (required return) of at least 11 percent. Required: a. What is the estimated value of this office property (assume a 0.10 terminal cap rate)? b. What is the current, or going-in, cap rate for this property?
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