Question: You are an experienced property analyst. Your client has identified an income producing property in the Laucala Beach Industrial precinct and would like to consult

You are an experienced property analyst. Your client has identified an income producing property in the Laucala Beach Industrial precinct and would like to consult you on the viability of the investment. Below are details of the subject property:
Current Market Price $ 7,000,000
Net-lettable area (m2) 4,500
Acquisition-related cost (stamp duty, lawyers etc.) $ 415,000
Potential Gross Income per square meter (m2 ) $ 150
Vacancy 8%
Operating Expense per square meter (m2 ) $ 25
Loan to Value Ratio (% ) 60%
Investment Loan Interest Rate/pa (fully amortizing) 7.80%
Loan Term (years) 20
Compounding/year 12
Depreciation/pa $ 156,000
Investor's Marginal Tax Rate 45%
Growth in PGI/pa 4.5%
Growth in OPEX/pa 3.50%
Expected After-Tax Disposition Cash Flow (end of Year 5) $ 4,200,000

a) The client chooses to take an expected rate of return on equity of 13.00%pa. Complete the Multi Year Cash Flow and calculate the NPV and IRR?
b) If the purchase price is reduced to $6,000,000 would you regard this to be a good investment? Why? [show necessary working]

Step by Step Solution

★★★★★

3.38 Rating (148 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!

You are on the Moon and would like to send a probe into space so that it does not fall back to the surface of the Moon. What launch speed do you need?

You are an experienced and well-respected member of the Chevron human resources organization and are frequently asked for advice on personnel matters. So you are not surprised when you receive a call...

You have just inherited $30,000 and would like to invest the money in a conservative investment as you prepare for retirement ten years from now. Describe the factors you would consider in evaluating...

The Tsetsekos Company was planning to finance an expansion in the summer of 2004. The principal executives of the company all agreed that an industrial company such as theirs should finance growth by...

Statement and Note Disclosure, LCM, and Purchase Commitment Maddox Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to...

Delia Alvarez, owner of Delia's Lawn Service, wants to borrow money to buy new lawn equipment. A local bank has asked for financial statements. Alvarez has asked you to prepare financial statements...

In real life the future health of the economy cannot be reduced to three equally probable states like slump, normal, and boom. But we?ll keep that simplification for one more example. Your company...

A firm with a 14% WACC is evaluating two projects for this years capital budget. After-tax cash flows, including depreciation, are as follows: a. Calculate NPV, IRR, MIRR, payback, and discounted...

Match each ratio or percentage with itscomputation. Ratios or Percentages Definitions 1. Profit margin 2. Inventory turnover ratio 3. Average collection period 4. Dividend yield ratio 5. Return on...

Agnes Ball is considering an investment in the common stock of a chain of retail department stores. She has narrowed her choice to two retail companies. Fast Corporation and Style Corporation, whose...

The following items were selected from among the transactions completed by Aston Martin Inc. during the current year: Apr. 15. Borrowed $225,000 from Audi Company, issuing a 30-day, 6% note for that...

Which of the following is a benefit of client-server computing? Client-server computing has shifted the focus of computing to using information to fulfill strategic objectives. Client-server systems...

Ethical and legal issues that salespeople need to worry about include the relationship between the sales manager and the salesperson, conflicts between corporate policy and the sales rep's personal...

What fascinated you the most about the short case study of gina the wild child? And watch the video on youtube https://www.youtube.com/watch?v=VjZolHCrC8E

3. Imagine that you have a 3D array (3X4X4), need to make a 2D array (w X ) by using integers from 3D array, where there: 2Darray[0][j] = 3Darray[0][2][k] + 3Darray[1][2][k], 2Darray[1][j] =...

0i(k)+ u(k), y(k) [:] 5.10. Given x(k+1) x(k), and assume zero initial conditions. (a) Is there a sequence of inputs {u(0), u(1),.} that transfers the output from y(0) = to in finite time? If the...

Staining a slide increases the microscope's ___________. a. magnification b. contrast c. resolution d. field of view

all calculation question You are an experienced property analyst. Your client has identified an income producing property in the Laucala Beach Industrial precinct and would like to consult you on the...

question You are an experienced property analyst. Your client has identified an income producing property in the Laucala Beach Industrial precinct and would like to consult you on the viability of...

I want answers to the case study below CASE STUDY The Rise, Fall, and Resurrection of Iridium: A Project Management Perspective The Iridium Project was designed to create a worldwide wireless...

will you please answer my questions i just posted 6. Audit Considerations: a. What material types of transactions and transaction cycles are involved? b. What are the high-risk areas? c. What are the...