You buy  a recently completed industrial-office building and starting at the beginning of the first year, you put in a single tenant who pays net rent $50,000 per year at the end of each year on a 5-year triple-net lease.  At the end of the fifth year, if all goes well between you and the tenant, you expect to increase the rent to $70,000 per year, and put the tenant on a 10-year triple-net lease.  After owning the property for 10 years, and just after collecting the rent for that 10^th year, you expect to sell the building at a Reversionary Cap Rate of 10%.  

1. What is the value of the property if the required initial return is 12 percent per year?

2. If the cap rate on the price you pay when you initially buy the building is in-line with the market cap rate of 10.5%, then what is your IRR on your excellent real estate investment?

You buy a recently completed industrial-office building and starting at the beginning of the first year, you put in a single-tenant who pays net rent $50,000 per year at the end of each year on a 5-year triple-net lease. At the end of the fifth year, if all goes well between you and the tenant, you expect to increase the rent to $70,000 per year and put the tenant on a 10-year triple-net lease. After owning the property for 10 years, and just after collecting the rent for that 10th year, you expect to sell the building at a Reversionary Cap Rate of 10%.

A. What is the value of the property if the required initial return is 12 percent per year?

B. If the cap rate on the price you pay when you initially buy the building is in-line with the market cap rate of 10.5%, then what is your IRR on your excellent real estate investment?

An analyst evaluating securities has obtained the following information. The real rate of interest is 2.2% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.1% next year, 3.1% the following year, 4.1% the third year, and 5.1% every year thereafter. The maturity risk premium is estimated to be 0.1 × (t – 1)%, where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%. a. What is the yield on a 1-year T-bill? Round your intermediate calculations and final answer to two decimal places. % b. What is the yield on a 5-year T-bond? Round your intermediate calculations and final answer to two decimal places. % c. What is the yield on a 5-year corporate bond? Round your intermediate calculations and final answer to two decimal places. %

1. Assume that BAPS Corporation is considering the establishment of a subsidiary in Norway. The initial investment required by the parent is $10 million. If the project is undertaken, BAPS would terminate the project after four years. Their cost of capital is 13%, and the project is of the same risk as BAPS’ existing projects. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows the Norwegian subsidiary will generate over the project’s lifetime in Norwegian kroner (NOK):

               Year 1                         Year 2                          Year 3                         Year 4

NOK20,000,000           NOK30,000,000           NOK34,000,000       NOK40,000,000

The current exchange rate of the Norwegian kroner is $0.135. BAPS’ exchange rate forecast for the Norwegian kroner over the project’s lifetime is listed below:

               Year 1                       Year 2                         Year 3                         Year 4

                $.13                           $.14                            $.12                             $.15

1. What is the net present value of the Norwegian project? What is the investment decision? (10)

A manufacturing processing company currently owns a hydraulic pressing machine that was bought for $250,000 three years ago. This machine is worth $90,000 today. The operating and maintenance (O&M) cost of the machine is $15,000 in year 1, which increases by $1,000 ever year after that till the end of its remaining 3 years. If this machine is kept and sold after one year, it market value will be $50,000. If it is not sold in year 1, it has to be kept for two more years and its market value at the end of year 3 will be $10,000.

A replacement hydraulic machine can be purchased for $200,000. The useful life of this machine is 5 years. Its O&M cost is $6,000 in year 1 and it increases by 3% every year after that. This machine can only be sold in year 3 for $80,000 or in year 5 for $50,000.

If the MARR is 7%, determine when the best time to replace the current machine is.

(all by hand, no excel)

Analyzing Cash Dividends on Preferred and Common Stock
Everett Company has outstanding 30,000 shares of $50 par value, 6% preferred stock and 70,000 shares of $1 par value common stock. During its first three years in business, it declared and paid no cash dividends in the first year, $310,000 in the second year, and $90,000 in the third year.

(a) If the preferred stock is cumulative, determine the total amount of cash dividends paid to each class of stock in each of the three years.

(b) If the preferred stock is noncumulative, determine the total amount of cash dividends paid to each class of stock in each of the three years.

Problem 18-5A (Part Level Submission)

Viejol Corporation has collected the following information after its first year of sales. Sales were $1,600,000 on 100,000 units, selling expenses $250,000 (40% variable and 60% fixed), direct materials $510,000, direct labor $288,200, administrative expenses $284,000 (20% variable and 80% fixed), and manufacturing overhead $350,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.

Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.)

Your company is contemplating replacing their current fleet of delivery vehicles with Nissan NV vans. You will be replacing 5 fully-depreciated vans, which you think you can sell for $4,800 apiece and which you could probably use for another 2 years if you chose not to replace them. The NV vans will cost $47,000 each in the configuration you want them, and can be depreciated using MACRS over a 5-year life. Expected yearly before-tax cash savings due to acquiring the new vans amounts to about $5,500 each. If your cost of capital is 12 percent and your firm faces a 35 percent tax rate, what will the cash flows for this project be? (Round your answers to the nearest dollar amount.)

Q. Rotorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The company’s current assets, current liabilities, and sales over the last five years (Year 5 is the most recent year) are as follows:

Required:

1. Express all of the asset, liability, and sales data in trend percentages. Use Year 1 as the base year. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

"A company's marketing strategy will last two years and produce revenue in years 1 and 2 only. The strategy can result in a success, a moderate success, or a failure.
The marketing strategy will cost $50,000 immediately (year 0), $44,000 in year 1, and $15,000 in year 2. There is uncertainty with projected revenues, but the forecasted revenues and probabilities for the marketing strategy are as follows:
- Success: Year 1: $109,000; Year 2: $126,000; Probability: 0.35
- Moderate success: Year 1: $95,000; Year 2: $75,000; Probability: 0.52
- Failure: Year 1: $55,000; Year 2: $57,000; Probability: 0.13
The company's MARR is 25%. You can ignore any other costs except for the marketing costs.
Calculate the standard deviation of the net present worth for the strategy.
HINT: it is easier to calculate the net present worth of each separate result first (success, moderate success, failure) before dealing with the probabilities."