1.1 Assuming that Mortgage A is selected, calculate the levered cost of equity. 1.2 Assuming that...

  

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1.1 Assuming that Mortgage A is selected, calculate the levered cost of equity. 1.2 Assuming that Mortgage B is selected, calculate the levered cost of equity. (Answer the questions in the corresponding area of the Answer sheet) You are interested in investing in a building costing £10,000,000. You can either finance the purchase of the building using either: > Mortgage A and a 40% loan-to-value ratio; or > Mortgage B and a 50% loan-to-value ratio. Further details regarding the mortgages are provided in Table 1. You require an 8% return on an unlevered equity investment. You anticipate receiving £1,000,000 in rental income at the end of every year for five years. Vou nlan to sell tbe huildina ofter five veers for $11 0 0 000 Table 1: Mortgage details. Mortgage A Mortgage B Interest rate per annum 5% 5% Compounded Payment frequency Туре Loan-to-value ratio Term (years) Annually Annually in arrears Interest-only Annually Annually in arrears Constant payment 40% 50% Question 1 Mortaage A Mortgage B Interest rate per annum Compounded Payment frequency Туре Loan-to-value ratio Term (years) 5% 5% Annually Annually in arrears Interest-only Annually Annually in arrears Constant payment 50% 5 40% 1.1 Assuming that Mortgage A is selected, calculate the levered cost of equity. 1.2 Assuming that Mortgage B is selected, calculate the levered cost of equity. (Answer the questions in the corresponding area of the Answer sheet) You are interested in investing in a building costing £10,000,000. You can either finance the purchase of the building using either: > Mortgage A and a 40% loan-to-value ratio; or > Mortgage B and a 50% loan-to-value ratio. Further details regarding the mortgages are provided in Table 1. You require an 8% return on an unlevered equity investment. You anticipate receiving £1,000,000 in rental income at the end of every year for five years. Vou nlan to sell tbe huildina ofter five veers for $11 0 0 000 Table 1: Mortgage details. Mortgage A Mortgage B Interest rate per annum 5% 5% Compounded Payment frequency Туре Loan-to-value ratio Term (years) Annually Annually in arrears Interest-only Annually Annually in arrears Constant payment 40% 50% Question 1 Mortaage A Mortgage B Interest rate per annum Compounded Payment frequency Туре Loan-to-value ratio Term (years) 5% 5% Annually Annually in arrears Interest-only Annually Annually in arrears Constant payment 50% 5 40%

Answer rating: 100% (QA)

Value of Investment 1000000000 Mortgage A Values Interest Rate Interest at end of year Loan to Value Ratio 40 Loan Amount 400000000 5 200000 Investment 600000000 Cash Flows Period InvestmentReturns Am... View the full answer