Rudolph Investments specializes in buying Christmas tree ornaments production facilities. It is planning to purchase yet another
Question:
Rudolph Investments specializes in buying Christmas tree ornaments production facilities. It is planning to purchase yet another one, and to finance the purchase with a participation loan. Below is the information (all numbers in $) for Rudolph Investments' anticipated annualized before-tax cash flows (BTCS) for the 2-year holding period:
| Year 0 | Year 1 | Year 2 | Year 2 | |||||
| Purchase price | 1,000,000 | Net Operating Income | 150,000 | 200,000 | Resale price | 2,000,000 | ||
| Loan amount | 600,000 | Loan payment | 55,000 | 55,000 | Remaining loan balance | 450,000 | ||
| Equity invested | 400,000 | Participation payment | 5,000 | 20,000 | Participation payment on sale | 200,000 | ||
| BTCF | 90,000 | 125,000 | BTCF from sale | 1,350,000 |
Calculate the lender's annual rate of return, or the IRR, assuming that Rudolph Investments makes loan payments MONTHLY. For that, you would need to follow two steps:
Step 1: "financial calculator keys"
CFo =
C 01 =
F 01 =
C 02 =
F 02 =
C 03 =
F 03 =
IRR
CPT
Step 2:
The answer from Step 1 is then multiplied by. Put "1" if no additional math is required.
The resulting return for the lender is percent. Put the answer in percent, not in decimals, and round to 2 decimal places. For example, if you got 12.34 percent, put just 12.34. Do NOT put the "%" sign.
True or false? The higher the participation percentages applied to net operating income in excess of some agreed-upon dollar amount, the higher the investor's BTIRR. Put "true" or "false".
Expert Answer:
Step 1 CFo 1000000 C 01 55000 F 01 0 C 02 55000 F 02 0 C 03 45000 F 03 200000 IRR CPT Step 2 1 The resulting return for the lender is 893 True or fals... View the full answer
