2. Your company is contemplating the acquisition of an aged commercial property that's expected to be inservice for another 25 years. Current tenants have recently committed to extended lease agreements,suggesting the annual rent of $500,000 is likely to be steady for the initial five years. Post that, expect a 10%hike in this rental amount at the end of every five-year span for the property's remaining tenure. Youanticipate that the first year's operational costs, inclusive of tax, will amount to $100,000, with an annualincrement of $5,000 from the second year onwards. After the 25-year timeframe, you plan to demolish thestructure and vend the land, projecting a net gain of $80,000. Given an alternative investment offering a yearlyreturn of 12%, what's the utmost sum you'd part with currently for the aforementioned property and land?

A commercial property lease is a legally binding agreement between a property owner and a business…

Answered: Your company is contemplating the…

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

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Assume a broker has listed a grocery-anchored shopping center with 100,000 sf of total retail space for lease, at a price of $9 million at an advertised 7.0% cap rate in a suburban market approximately 30 miles northwest of Pittsburgh. a. Calculate the price in dollars per square feet (show your work). b. Calculate the net operating income (NOI) (show your work)? C. If you purchase this asset and hold it for five years, what is a reasonable exit cap rate you could obtain for the sale, assuming no major investment in the property while you own it, only routine maintenance (no roof replacement or mechanical upgrades)?
An owner of the ATRIUM Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corporation for 20,000 rentable square feet of office space. ACME would like a base rent of $11 per square foot (PSF) with step-ups of $1 per year beginning one year from now. Required: a. What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.) b. The owner of ATRIUM believes that base rent of $11 PSF in (a) is too low and wants to raise that amount to $15 with the same $1 step-ups. However, now ATRIUM would provide ACME a $53,000 moving allowance and $130,000 in tenant improvements (Tls). What would be the present value of this alternative to ATRIUM? c. ACME informs ATRIUM that it is willing to consider a $14 PSF with the $1 annual stepups. However, under this proposal, ACME would require ATRIUM to buyout the one year remaining on its existing lease in another building. That lease is $6 PSF for 20,000 SF per year. If ATRIUM…
A property worth $16 million can be refinanced with an 85% loan at 9.5% over 20 years. The balance on the current loan is $12,148,566. Loan payments are $113,302 per month. The loan balance in 10 years will be $8,396,769. If the property is expected to be sold in 10 years, what is the incremental cost of refinancing? a)11.18% b)12.42% c) 10.45% d) 10.94%
A building is expected to require $1,000,000 in capital improvement expenditures in five years (60 months). The building's net operating cash flow prior to that time is expected to be at least $20,000 at the end of every month. How much of that monthly cash flow must the owners set aside each month in order to have the money available for the capital improvements, assuming monthly interest rate is 1.5%? Group of answer choices $14,332.83 $13,609.73 $12,666.67 $10,393.43
Consider a firm A that wishes to acquire an equipment. The equipment is expected to reduce costs by $4200 per year. The equipment costs $25000 and has a useful life of 5 years. If the firm buys the equipment, they will depreciate it straight-line to zero over 5 years and dispose of it for nothing. They can lease it for 5 years with an annual lease payment of $5000. If the after-tax interest rate on secured debt issued by company A is 2% and tax rate is 35%, what is the Net Advantage to Leasing (NAL)?(keep two decimal places)
I purchased a house and intend to hold the property indefinitely. I plan to rent the house to generate rent income. The first year’s rent is $15,000, and will grow it at the rate of 10% for 3 years after that. After the initial 4 years, the growth rate in the rent will stabilize at 5%. The maintenance will cost $5,000 a year. The appropriate discount rate is 20%. a. What is the present value of rent income? b. What is the present value of the house? c. What is the present value of maintenance costs?
A property owner is evaluating the following alternatives for leasing space in his office building for the next five years: Gross lease. Rent will be $34 per square foot each year with the lessor responsible for payment of all operating expenses. Expenses are estimated to be $9 during the first year and increase by $1 per year thereafter. Calculate the effective rent to the owner (after expenses) for the lease using a 11 percent discount rate. (Click to select) (Click to select) $29.01 $18.57 $23.21 $22.05
You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1,310,000. Over the past five years, the price of land in the area has increased 5 percent per year, with an annual standard deviation of 31 percent. You have approached a buyer and would like the option to sell the land in 12 months for $1,460,000. The risk- free rate of interest is 5 percent per year, compounded continuously. What is the price of the put option necessary to guarantee your sales price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price of put option $ 208,531.70 M
Munabhai
A small retail center has 1,475 square foot for rent. It has a current lease ending in two years with a contract rent of $11 per year per square foot. At the end of year 2, the investor expects to resell the property at a terminal capitalization rate of 10%. The sales cost is 5% of the resale price. The rent for year 3 is projected at the market rent level of $18 per year per square foot, and the NOI grows at a rate of 2% beyond year 3. The collection cost is .5% of the potential gross income. The capitalization rate for the net cash flow is 11%, and all cash flows happen at the end of each year. Expenses include taxes, maintenance, management, and replacement allowance. Taxes for the first year are $7,500 and increase by $700 per year. Maintenance is $2,212 for the first year and increases by $200 per year. Management is 5% of effective gross income. Replacement allowance happens at the beginning of the first year and is $112,000. Potential gross income is the revenue from rents.…
Consider a firm A that wishes to acquire an equipment. The equipment is expected to reduce costs by $5700 per year. The equipment costs $29000 and has a useful life of 7 years. If the firm buys the equipment, they will depreciate it straight-line to zero over 7 years and dispose of it for nothing. They can lease it for 7 years with an annual lease payment of $8000. If the after-tax interest rate on secured debt issued by company A is 7% and tax rate is 25%, what is the Net Advantage to Leasing (NAL)?(keep two decimal places) Answer: -18233.59
After two years in business, the owners have saved (have a surplus of) $123,750.00. They must decide if they will invest in property or investment bonds. If they invest in a property and a vehicle, the total cost will be $445,500,00, of which $123,750.00 will be required as a down payment. The fixed interest rate on the mortgaged amount is 5.40% compounded semi-annually for a term of 13 years. 5. What is the size of the semi-annual payments required to settle this mortgage? 6. What is the size of the final payment? 7. How long would it take (in months) to settle this loan with regular monthly payments of exactly $2000 instead of the PMT value calculated in Part 5?

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