NOI is expected to be $130,000 in year 1 with 5 percent annual increases. The purchase price of the property is $720,000. 100 percent equity financing is used to purchase the property. The property is sold at the end of year 4 for $860,000 with selling costs of 4 perce The required unlevered rate of return is 14 percent. equired: a. Calculate the unlevered internal rate of return (IRR). b. Calculate the unlevered net present value (NPV). Complete this question by entering your answers in the tabs below.

NOI is expected to be $130,000 in year 1 with 5 percent annual increases. The purchase price of the property is $720,000. 100 percent equity financing is used to purchase the property. The property is sold at the end of year 4 for $860,000 with selling costs of 4 perce The required unlevered rate of return is 14 percent. equired: a. Calculate the unlevered internal rate of return (IRR). b. Calculate the unlevered net present value (NPV). Complete this question by entering your answers in the tabs below.

Name: An office building is purchased with the following projected cash flo
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Description: An office building is purchased with the following projected cash flows:•NOI is expected to be $130,000 in year 1 with 5 percent annual increases.• The purchase price of the property is $720,000.•100 percent equity financing is used to purchase the

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...

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Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Project B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in year two, $2,000 in year three. $2,500 in year four, and $2,000 in year five. What is the NPV using 8% as the discount rate? For further instructions on net present value in Excel, see Appendix C.
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
You are offered an asset that costs $150,000 and has cash flows of $1,350 at the end of every month for the next 6years. Assume the cost of capital is 9percent per year.a. What is the IRR of the asset?b. What is the NPV of the asset? c. If your cost of capital is 12percent, should you purchase it? (Setup cash flows in Excel spreadsheets and uses the following Excel Financial functions, IRR, and NPV to derive your answers.
Compute the payback statistic for Project A if the appropriate cost of capital is 7 percent and the maximum allowable payback period is four years. (Round your answer to 2 decimal places.) Project A Time: 0 1 2 3 4 5 Cash flow: −$1,400 $510 $600 $600 $380 $180 Payback years: _______.__
Lara Technologies is considering a cash outlay of $230,000 for the purchase of land, which it could lease out for $37,600 per year. If alternative investments that yield a 15% return are available, the opportunity cost of the purchase of the land is a.$34,500 b.$72,100 c.$37,600 d.$3,100
You have the opportunity to invest in a project with the following cash flows. Initial investment/Outlay today: $11,000. Cashflow back to you in 1 year $6000 Cashflow back to you in 2 years $5000 Scrap Value in 2 years $500 Assume interest rates are 5% in the 1 year and 7% in the 2 year. (tip: use the spreadsheet “NPV” from Moodle to helpin your calculations) a. Calculate the NPV of the project (show formula/workings)? b. Should you invest in this project? Why ?
Assume the following expected annual cash flows from operating a office property investment: Year 1 = $225,000; Year 2= $236,500; Year 3 = $248,000; Year 4 = $259,500; Year 5 = $271,000. If the net proceeds from the sale in Year 5 are $4.9 million and the property can be purchased today for 4.25 million, what is the expected return on the investment? 8.38% 10.00% O 12.15% 9.14%