Question 1. We are considering an acquisition of an existing medical office building (MOB) to our...

Question 1.

We are considering an acquisition of an existing medical office building (MOB) to our portfolio. There are 4 tenants. Tenants 1 and 2 occupy 15,000 and 8,000 square feet respective, at $19.00 per square foot. Tenant 3 has 10,000 at $20.00 and tenant 4 has 4,000 at $22.00. All the leases are presently expected to continue through the 4 year holding period and have CPI increases estimated at 2% per year. The asking price for the property is $3,000,000 of which 75% of the value would be allocated to the building; and vacancy and collection losses are projected at 10% of rents. First year operating expenses include $120,000 (i.e. taxes, insurance, utilities, maintenance, etc.) and management estimated at 5% of EGI. Our tax rate is 36% and all loses are recognized in the year they are incurred. Capital gains and depreciation recapture are both taxed at 15%. A 70% loan can be obtained at 9.5% for 25 years. Both the property value and operating expenses are expected to grow 4% per year and our projected holding period is 4 years. Selling expenses are projected at 4% of the gross sales price. The reinvestment rate for cash flows is 7% and the discount rate is 12%.

What is the before tax IRR and MIRR to the investor under the proposed mortgage arrangement? Comment on the differences for the investor yield estimates you just calculated.
What is the after tax IRR, and the effective tax rate under this scenario?
Calculate the terminal cap rate based on the information above.
What is the NPV to the equity of the project?
Assume the 12% discount rate holds. Examine the equity BTIRR under the following sample of LTVs and interest charges.

@ 65%	7%
@ 70%	10%
@75%	12%
@80%	15%

Does this project have positive or negative leverage at the given LTV levels?

Expert Solution

Answer:

The answer is given in the attachment below:

ekkarill92 answered 1 year ago

You are considering the acquisition of a small office building. The purchase price is $775,000. Seventy-five...

You are considering the acquisition of a small office building. The purchase price is $775,000. Seventy-five percent of the purchase price can be borrowed with a 30-year, 7.50% mortgage. Up-front financing costs will total 3.00% of the loan amount. The expected cash flows assuming a 5-year holding period are as follows: Year NOI 1 $48,492 2 $53,768 3 $59,282 4 $65,043 5 $71,058 The cash flow from the sale of the property is expected to be $1,000,000. What is the...

We can remodel our existing building at a cost of $6.9 million, or build a new...

We can remodel our existing building at a cost of $6.9 million, or build a new building at a cost of $11 million. The old building, after it is refurbished, would not be as efficient as the new one, and energy costs would, therefore, be $750,000 a year higher. The maintenance cost for the old building would be $450,000 per year and $420,000 for the new building. The salvage value for the new building would be $3.25 million after its...

1.Suppose you are considering the acquisition of an income producing property. The building is currently leased...

1.Suppose you are considering the acquisition of an income producing property. The building is currently leased for the next 4 years with annual (year-end) cashflows of $1,500,000. At the end of the current lease, you expect rents to increase to $1,800,000 (annually) for the foreseeable future. You anticipate selling the property ten years from today, at an expected multiple of 10.0 times the prevailing market rent. Market rates (OCC) are currently 5%, but given the uncertainty surrounding future rental rates...

Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $3.4 million. Medical Labs...

Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $3.4 million. Medical Labs will provide the following pattern of cash inflows and synergistic benefits for the next 25 years. There is no tax loss carryforward. Use Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods. Years 1–5 6–15 16–25 Cash inflow (aftertax) $ 330,000 $ 350,000 $ 390,000 Synergistic benefits (aftertax) 38,000 48,000 68,000 The cost of capital...

Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $1.4 million. Medical Labs...

Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $1.4 million. Medical Labs will provide the following pattern of cash inflows and synergistic benefits for the next 25 years. There is no tax loss carryforward. Use Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods. Years 1–5 6–15 16–25 Cash inflow (aftertax) $130,000 $150,000 $190,000 Synergistic benefits (aftertax) 18,000 28,000 48,000 The cost of capital for the acquiring...

On December 1, 2013, Crawley Corporation incurs a 15-year $400,000 mortgage liability in conjunction with the acquisition of an office building.

On December 1, 2013, Crawley Corporation incurs a 15-year $400,000 mortgage liability in conjunction with the acquisition of an office building. This mortgage is payable in monthly installments of $4,800, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, 2013. The portion of the second monthly payment made on January 31, 2014, which represents repayment of principal is...

1. Company Amliba.Inc is considering building a second headquarter in a new city. The new office...

1. Company Amliba.Inc is considering building a second headquarter in a new city. The new office will create 5000 new jobs for the city. So the government is incentivized to support the project. The company plans to issue $100 million bond with coupon rate of 8%. Coupon will be paid annually and the bond matures in 5 year. As a form of support, local government guarantee the bond, so the YTM of the bond at issuance is 5%. Another bond...

You have purchased a multi-tenant office building for $15,000,000. Your acquisition costs associated with this purchase...

You have purchased a multi-tenant office building for $15,000,000. Your acquisition costs associated with this purchase are $25,000. The estimated land value is $3,000,000, of which you estimate the depreciable land portion at $1,000,000. You estimate the 7-year property at a value of $2,000,000. You have arranged a 70% LTV, 7-year mortgage at a 5.25% interest rate with 2 points and a 25 year amortization period. Your projected NOI in the next two years is $1,200,000 and 1,250,000 which includes...

Advergaming; Are we exploiting our children? Write a response to the question "Are we exploiting our...

Advergaming; Are we exploiting our children? Write a response to the question "Are we exploiting our children" ( minimum 400 words).

QUESTION 1 Geko PLC is considering the manufacture of a new product. The company has existing...

QUESTION 1 Geko PLC is considering the manufacture of a new product. The company has existing buildings that could be sold to buyers for R 120,000. The balance sheet records the building as having a value of R 60,000. The new product, which has a life of 5 years, will require installation of sophisticated machinery. This will cost R 200,000. At the end of its life, the machine can be sold for R 10,000. Depreciation should be charged on the...

Question