S. S. Sarkar (S.S.S.), a real estate investment company, is considering investing in a shopping center....

 

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S. S. Sarkar (S.S.S.), a real estate investment company, is considering investing in a shopping center. The sale price is $5,000,000 and S.S.S. expects to have positive after-tax and after-mortgage payment cash flows from rents of $400,000 for the next three years. S.S.S. can obtain a mortgage with a downpayment of $3,000,000. At the end of the third year, S.S.S. anticipates selling the shopping center for a net after-tax gain on sale of $4,500,000. If S.S.S.'s required return is 30%, should S.S.S. go ahead and purchase the shopping center? NPV & IRR Table: year cash flow 0 1 2 3 NPV IRR (3,000,000) 400,000 400,000 4,900,000 ($225,307) 26.29% Decision >> Inputs: Initial outlay CF ATGS No r Calculate the NPV and the IRR. Indicate the investment decision in cell E104. 3,000,000 400,000 4,500,000 30% What is the maximum down payment S.S.S. needs to make, assuming it does not effect the yearly cash flows, for S.S.S. to exactly meet its required return of 30%? Fill in the inputs Hint: Use Goal Seek: set IRR (cell D100) at 0, r at .30, and the changing cell at Initial outlay, and click okay. [The amount is greater than the initial outlay of $3,000,000.] S. S. Sarkar (S.S.S.), a real estate investment company, is considering investing in a shopping center. The sale price is $5,000,000 and S.S.S. expects to have positive after-tax and after-mortgage payment cash flows from rents of $400,000 for the next three years. S.S.S. can obtain a mortgage with a downpayment of $3,000,000. At the end of the third year, S.S.S. anticipates selling the shopping center for a net after-tax gain on sale of $4,500,000. If S.S.S.'s required return is 30%, should S.S.S. go ahead and purchase the shopping center? NPV & IRR Table: year cash flow 0 1 2 3 NPV IRR (3,000,000) 400,000 400,000 4,900,000 ($225,307) 26.29% Decision >> Inputs: Initial outlay CF ATGS No r Calculate the NPV and the IRR. Indicate the investment decision in cell E104. 3,000,000 400,000 4,500,000 30% What is the maximum down payment S.S.S. needs to make, assuming it does not effect the yearly cash flows, for S.S.S. to exactly meet its required return of 30%? Fill in the inputs Hint: Use Goal Seek: set IRR (cell D100) at 0, r at .30, and the changing cell at Initial outlay, and click okay. [The amount is greater than the initial outlay of $3,000,000.]

Answer rating: 100% (QA)

To calculate the NPV and IRR we fill in the inputs Init... View the full answer