Project #97475 - finance

Q3(a). What is the leveraged internal rate of return for this project? 

Q3(b). You propose to an Investor that they contribute 70% of the equity required for the project.  In exchange, they’ll receive 60% of the cash flows from the project.

Show the Investor’s cash flows and calculate the Investor’s Internal Rate of Return by constructing an “Investors Returns” table (EXCEL)

Q3(c). Show your cash flows and calculate your internal rate of return for the proposed by constructing an “Entrepreneur’s Returns” table

Question #4 Setup:

When you originally purchased a small apartment building five years ago, you obtained a $5.4 million loan which carried a 7.00% interest rate, annual (not monthly) payments and a 25-year amortization period.  The loan has a 10-year maturity but carries no pre-payment penalty.  The annual loan payment is $463,000.

The Net Operating Income for the coming year (Year 6) is projected to be $722,000.

Since your loan doesn’t mature for another five years, you have the option of keeping the loan in place.  Nonetheless, you’re considering refinancing.

Q4(a). If you kept your existing loan, what would your leveraged cash flow be in Year 6?  Show your work.

Q4(b). At the end of Year 5 your loan balance is $4.8 million.  Your lender offers to refinance your existing loan balance at the same 7.00% interest rate and 25-year amortization period as your original loan.

If you accepted this offer, what would your new loan payment and leveraged cash flow be for Year 6?  Whatpercentage change does this represent over your original leveraged cash flow for Year 6?

Q4(c). As an alternative, your lender offers to originate a new loan at an 80% loan-to-value which would carry the same 7.00% interest rate and 25-year amortization period as your original loan.

If you accepted this offer, what would your new loan payment and leveraged cash flow be for Year 6?  Whatpercentage change does this represent over your original leveraged cash flow for Year 6?

Q4(d). Another bank offers to originate a new loan equal to 80% of the property’s value at a 6.00% interest rate and with a 30-year amortization period. For the purpose of valuation, the current market capitalization rate for this type of property is 9.25%

If you accepted this offer, what would your new loan payment and leveraged cash flow be for Year 6?  Whatpercentage change does this represent over your original leveraged cash flow for Year 6?

 

Finally, how much equity will this proposal make available to you?

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Due By (Pacific Time) 12/02/2015 02:32 pm
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