Question
In: Accounting
Given the following information regarding an income producing property, determine the net present value using unlevered...
Given the following information regarding an income producing property, determine the net present value using unlevered cash flows at a discount rate of 10%. Expected Holding Period: 5 years; 1st year Expected NOI: $91,200; 2nd year Expected NOI: $93,873; 3rd year Expected NOI: $96,626; 4th year Expected NOI: $99,462; 5th year Expected NOI: $102,383; 6th Expected NOI: 105,634; Debt Service in each of the next five years: $60,544; Current Market Value: $897,000; Required equity investment: $223,350; Apply a going-out capitalization rate of 8.75% to determine the Gross Sales Price at end of year 5 has Closing Expenses of $12,000 and Disposition Fee (Brokerage Commission) of 3% of Gross Sales Price.; Remaining Mortgage Balance at end of year 5: $631,126. Show your steps used in Excel.
Solutions
Expert Solution
| Calculation of Net Present Value | ||||||
| Year | 1 | 2 | 3 | 4 | 5 | |
| Expected NOI | $91,200 | $93,873 | $96,626 | $99,462 | $1,02,383 | |
| Debt Service | -$60,544 | -$60,544 | -$60,544 | -$60,544 | -$60,544 | |
| $30,656 | $33,329 | $36,082 | $38,918 | $41,839 | ||
| Discounting @ 10% | 0.9091 | 0.8264 | 0.7513 | 0.6830 | 0.6209 | |
| Present Value | = | $27,869 | $27,545 | $27,109 | $26,582 | $25,979 |
| = | $1,35,083 | |||||
| Gross Sale Price | = | Present Value/ Capitalization Rate | ||||
| = | 135083/8.75% | |||||
| = | $15,43,806 | |||||
| Value of Entity | = | $15,43,806 | ||||
| Less Closing Expenses | = | -$12,000 | ||||
| Brokerage | = | -$46,314 | ||||
| Net Value of Entity | $14,85,492 | |||||
| Less Value of Equity | $2,23,350 | |||||
| Value of debt | $12,62,142 | |||||
| Less Already Balance of Mortage | $6,31,226 | |||||
| Net | $6,30,916 |
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