Posted by **chrystal** on Wednesday, August 25, 2010 at 7:38pm.

You are considering purchasing a 12,000 square feet (4,000 sf. per floor), three story office building for $1,250,000 with closing to be on May 12. The top and bottom floors are preleased for $24 per sq, ft. annually and the middle floor for $20 annually. Land costs are estimated at 10% of the value of the property. You expect rents to increase by 7% per year. You project that your vacancy and collection losses will be about 6%. You expect that operating expenses will be 35% of the adjusted gross income. The Friendly Federal Savings Bank has agreed to lend to you at a 9.5% annual interest rate with an amortization period of 30 years paid monthly. The loan will have only a term of 10 years. The amount of the loan is going to be based upon a 1.5 Debt Service Coverage Ratio for the first year's NOI. The bank is going to charge three points. At the end of year 3 you expect to refinance the property under the same terms as the original loan except for a reduction in the interest rate to 8% and a points charge of four points. (The new loan is based upon the year 4 NOI!) Your accountant has advised you that for this investment analysis, you should use expect a 31% marginal tax rate. You expect to sell the property at the end of the fifth year. The sales price is expected to be based upon an 11.5% capitalization rate of the year six NOI. Sales expenses are projected at 8%. You have concluded that your cost of equity capital is 10%. ****Finally, be sure that you DO NOT enter a space before, after, or in the middle of your answers. Entering a space will cause the answer to be scored incorrectly.****

What is the indicated loan amount? (Round your answers to the nearest $1)

Prepare a 5-year amortization schedule (Be careful to change the loan for year 4 and 5!):

Year 1 Year 2 Year 3 Year 4 Year 5

ADS

Interest

Principle

EOR Balance

How much equity cash is required?

Prepare a five-year projection of the before-tax cash flow for the property and a six-year projection of the net operating income.

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Gross Income

V&C

Adj. Gross

Operating Exp.

NOI

ADS

Refinancing $

BTCF

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

NOI

Interest

Depreciation

Points

Unexpensed Pts

Taxable Income

Taxes

BTCF

Taxes

ATCF

Compute the cash flow from reversion:

Sales Price

Selling Expense

Amount Realized

Mortgage Payoff

BTCF (reversion)

Purchase Price

Accumulated Depreciation

Adjusted Basis

Amount Realized

Adjusted Basis

Taxable Gain

Unexpended Points

Net Gain

Less Accumulated Depreciation

Preferential Taxable Gain

Tax on Preferential Gain

Accumulated Depreciation

Tax on gain from Depreciation

Tax on Preferential Gain

Total taxes on Gain

BTCF (reversion)

Taxes (reversion)

ATCF (reversion)

What is the indicated Net Present Value of this investment?

What is the Internal Rate of Return of this investment?￼

- real estate investment -
**chrystal**, Wednesday, August 25, 2010 at 11:52pm
still need help

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