Understanding Cap Rates, Sale Price, and Unleveraged Cash Flows. You wrap up the first part of...

Understanding Cap Rates, Sale Price, and Unleveraged Cash Flows. You wrap up the first part of your Stage 2: Discounted Cash Flow Analysis on a Mixed-Use Retail and Office Building assuming a three-year holding period below:

The asking price is $3.7 million.

You should feel free to use any Excel Spreadsheets provided in class (modified as needed) in answering this question

(a). What Project Capitalization Rate is implied by the asking price state above? Show your work.

(b). Market experts predict the capitalization rate for this type of property at the end of three years will be 9.0%. Brokers report that they typically charge 6% on a property.

What will the net sale price be if you sold the property at the end of year three? Show your work with the help of a table.

Note: After you've pasted your table below, please highlight your entire table and select 10pt Font Size from the formatting toolbar

p1.jpg

Expert Solution

Part (a)

Ask Price = NOI of year 1 / Capitalization Rate

Hence, Capitalization Rate = NOI of year 1 / Ask Price = 326,000 / (3.7 x 10⁶) = 8.81%

Part (b)

Sale Price at the end of year 3 = NOI of year 4 / Capitalization rate = 384,000 / 9% = $ 4,266,667

Net Sale price = Sale price x (1 - Brokerage) = 4,266,667 x (1 - 6%) = $ 4,010,667

jeff jeffy answered 2 years ago

CAP rates measure A. Returns from both the yearly cash flows of a property and the...

CAP rates measure A. Returns from both the yearly cash flows of a property and the sale of property B. The NOI of multiple years of a property C. One year of NOI relative to the sales price D. The NOI and before tax equity reversion of a property relative to the sale price The valuation approach most commonly used for insurance purposes is the A. Cost approach B. DCF approach C. Direct Capitalization D. Sales Comparison Which of the...

An understanding of a firm’s cash flows is an integral part of each of the six...

An understanding of a firm’s cash flows is an integral part of each of the six steps in financial statement analysis. They are: Identify the Economic Characteristics of a Business Identify the Strategy of the Firm Adjust the Financial Statements for Nonrecurring, Unusual Items Analyze Profitability and Risk Prepare Forecasted Financial Statements Value the Firm Discuss how the statement of cash flows integrates into the above six steps of analysis.

This is a two-part discussion topic. In the first part, you will demonstrate your understanding of...

This is a two-part discussion topic. In the first part, you will demonstrate your understanding of one key aspect of perfect competition. In the second, you will apply your understanding of perfect competition to the world around you. 1. In a perfectly competitive industry, buyers and sellers are "price-takers". What exactly does it mean to say that sellers are price takers? [Hint: Why does a seller not sell at a price lower than the market-established equilibrium price? Why does a...

you are to find a business for sale, project the cash flows, and calculate the NPV...

you are to find a business for sale, project the cash flows, and calculate the NPV to determine whether the business is worth buying based on NPV and your overall evaluation. You may wish to visit a business broker website as they list businesses for sale, usually provide latest year cash flow and the price of the business. You need to: 1. Qualitatively assess the business. Why is it viable in the long run? If it’s not then choose another...

completion: understanding the three sections of the cash flows statement

Below are the expected cash flows and interest rates for the next nine years. Cash flows...

Below are the expected cash flows and interest rates for the next nine years. Cash flows will occur at the end of the nominated years. Cash Flows Interest Rates Year 0 Years 1 - 2 8% Year 1 Year 2 +$ 6,500 Year 3 +$ 1,500 Years 3 – 8 6% Year 4 Year 5 Year 6 -$ 2,500 Year 7 Year 8 Year 9 +$ 10,000 Years 9 - 10 7% Year 10 i. Using the Table function within...

Wrap up this semester course and what you have learned in this course Human Services and...

Wrap up this semester course and what you have learned in this course Human Services and Helping Process Module 1- Are the Helping Professions for You? Module 2: The Helper – Professional Identity Module 3: Understanding Diversity. Self-Reflection Paper Due. Module 4: Concerns of Beginning Helpers Module 5: The Helping Process. First Study Journal Due (Modules 1-5) Module 6: Applying Theory to Practice Module 7: Ethical and Legal Issues. Case Study Assignment Due Module 8: Managing Boundary Issues. Agency Contact...

Document your understanding of the Statement of Cash Flows and its preparation?

Match up the payback period with the cash flows. - A. ...

Match up the payback period with the cash flows. - A. B. C. D. E. CF0: -905 CF1: 830 CF2: 130 CF3: 770 CF4: 270 - A. B. C. D. E. CF0: -1075 CF1: 850 CF2: 320 CF3: 730 CF4: 100 - A. B. C. ...

Q1 - Cash flows from investing activities, as part of the statement of cash flows, include:...

Q1 - Cash flows from investing activities, as part of the statement of cash flows, include: a. Collections from customers. b. Receipts from the sale of land. c. Issuing a company’s own stocks. d. Paying dividends. Q2 - The method that uses cash account to prepare cash flow from operating activities section of cash flow statement is: a. Direct Method b. Reciprocal Method c. Indirect Method d. Direct Write off Method Q3- A company’s net sales and average accounts receivables...

Question