Total acquisition price: $3,200,000

• Property consists of eight office suits, three on the first floor and five on the second
• Contract rents: two suits at $4,800 per month, one at $5,600 per month, and five at $2,200 per month
• Annual market rent increase: 3.0% per year
• Vacancy and collection losses: 5% per year
• Operating expenses: 25% of effective gross income each year.
• Capital expenditures: 6% of effective gross income each year.
• Expected holding period: 5 years.
• Expected selling price NOI capitalized at 6.75%.
• Selling expense in year 5:0% of the sale price
• Mortgage financing assumptions:
• First mortgage loan: (75% LTV).
• Annual mortgage interest rate: 6.25%
• Loan term and amortization period: 30 years.
• Total up-font financing costs: 1.75% of loan amount.
• Discount Rate: 10%

Questions You Need to Answer

What is the going in cap rate?

What is the NOI for year five?

What is the selling price after the five year hold?

What is loan balance at sale?

What is the NPV for this project?

What is the IRR for this project?

What is the DCF for this project—(note BTCF)?

What is reversion amount?

*Make sure to show your work in the Excel file (provide excel equations as well).

CASE STUDY: CRYSTAL SMITH

Crystal Smith, a 33-year old African American homemaker, cake to an outpatient clinic seeking “someone to talk to” about feelings of despair that had intensified over the previous 8-10 months. She was particularly upset about marital conflict and an uncharacteristic mistrust of her in-laws.

Ms. Smith said she had begun to wake before dawn, feeling down and tearful. She had difficulty getting out of bed and completing her usual household activities. At times, she felt guilty for not being her “usual self.” At other times, she became easily irritated with her husband and her in-laws for minor transgressions. She had previously relied on her mother-in-law to assist with the children, but she no longer entirely trusted her with that responsibility. That worry, in combination with her insomnia and fatigue, made it very difficult for Ms. Smith to get her children to school on time. In the past few months, she had lost 13 pounds without dieting. She denied current suicidal ideation, saying she “would never do something like that,” but acknowledged having thought that she “should just give up” and that she “would be better off dead.”

Two months previously, Ms. Smith had seen a psychiatrist for several weeks and received an anti-depressant. She reluctantly gave it a try, discontinuing it quickly because it made her feel tired. She had also dropped out of therapy, indicating that the psychiatrist didn’t seem to understand her.

Ms. Smith lived with her husband of 13 years and two school-age children. Her husband’s parents lived next door. She said her marriage was good, although her husband suggested she “go see someone” so that she would not be “yelling at everyone all the time.” While historically sociable, she rarely talked to her own mother and sister, much less her friends. A regular churchgoer, she had quit attending because she felt her faith was “weak.” Her pastor had always been supportive, but she had not contacted him with her problems because “he wouldn’t want to hear about these kinds of issues.”

Ms. Smith described herself as having been an outgoing, friendly child. She grew up with her parents and three siblings. She recalled feeling quite upset at age 10-11 when her parents divorced and her mom remarried. Because of fights with other kids at school, she met with a school counselor with whom she felt a bond. Unlike the psychiatrist she had recently consulted, Ms. Smith felt the counselor did not “get into my business” and helped her recover. She said she became quieter as she entered junior high school, with fewer friends and little interest in studying. She married her husband at age 20 and worked in retail sales until the birth of their first child when she was 23 years old.

Ms. Smith had not used alcohol since her first pregnancy and denied any use of illicit substances. She denied past and current use of prescribed medications, other than the brief trial of the antidepressant medication. She reported generally good health.

On the mental status examination, Ms. Smith was a casually groomed young woman who was cohere and goal-directed. She had difficulty making eye contact with the white middle-aged therapist. She was cooperative but mildly guarded and slow to respond. She needed encouragement to elaborate her thinking. She was periodically tearful and generally appeared sad. She denied psychosis, although reported occasionally feeling mistrustful of her family. She denied confusion, hallucinations, suicidality, or homicidality. Cognition, insight, and judgment were all considered normal.

List complete DSM-5 Diagnosis along with Codes

A manufacturing company manufactures 100 products every day. There is a 5% chance that any of the manufactured products is defective and the products are independent. Consider the 100 products manufactured on a single day.

Find the probability that

(a) only the first and the last products are defective and the rest are good

(b) no more than 2 products are defective

(c) the third defective product happens to be the 60th product

(d) there are two defective products within the first 50 products and two more defective products within the second set of 50 products.

Todd and Melissa, husband and wife, own property jointly. The property has an adjusted basis of $400,000 and a fair market value of $500,000. a. Discuss the rules for the calculation of the adjusted basis of the property to Todd if he inherits his wife’s share of the property and Todd and Melissa live in a community property state. b. If they live in a common law state?

In the current year, Marah gives $20,000 cash to Sam, $60,000 of stock to Craig, and $100,000 of bonds to Lynn. In the same year, Marah’s husband, Bryan, gives $120,000 of land to Jerry.

a. What are Marah and Bryan’s taxable gifts if they do not elect gift splitting?

b. What are the couple’s taxable gifts assuming the couple elects gift splitting?

You observe that the current three-year discount factor for default-risk free cash flows is 0.68. Remember, the t-year discount factor is the present value of $1 paid at time t, i.e. D=(1+r)^-t, where r(t) is the t-year spot interest rate (annual compounding). Assume all bonds have a face value of $100 and that all securities are default-risk free. All cash flows occur at the end of the year to which they relate.

c) you observe the following: a 2-year coupon bond paying 10% annual coupons with a market price of $97, and two annuities that are trading at the same market price as each other. The first annuity matures in 3 years and pays annual cash flows of $20, while the second annuity pays annual cash flows of $28 and matures in 2 years. Using this information:

i. Complete the term structure of interest rates, i.e. determine the one- and two-year discount factors, d1 and d2, respectively.

ii. Determine the price of the annuities.

Paul and Tina are age 66 and 62 respectfully. They file a joint return. They have itemized deductions totaling $15,000. They support their 24 year old son, Jed who goes to school on a full time basis. He earns $4,000 per year as a waiter at a restaurant.

Paul and Tina also support a friend Janice who came to dinner one evening and never left. She does not earn any money.

Wages ……………………………………   $170,000

Interest from savings ……………………           12,000

Interest on NYS qualified bonds …………           7,000

Inheritance from Tina’s Aunt Lucy…………       6,000

Alimony paid to Tina’s ex husband                       8,000

Child support from Tina’s ex husband Eric..       10,000

Prize from contest at church……………….          1,000

Dividend from ABC Corp. stock …………           2,000

1. What is Paul and Tina’s gross income?

2. What is Paul and Tina’s adjusted gross income?

3. What is Paul and Tina’s standard deduction?

4. What is Paul and Tina’s tax liability?