Your client, a real estate company, is evaluating a real estate project of $15,000,000 that will provide them with yearly NOI of $1,950,000 for the next 10 years and can then be resold for an amount estimated at $20,000,000. They can finance 75% of the purchase price through a 10-year mortgage with an amortization period of 25 years and an interest rate of 8%.

Your client will only proceed with the project if its returns are greater than his WACC or cost of equity. He provides you with the following information about his company:

 

1. Calculate the unlevered NPV of this investment
2. Calculate the unlevered IRR of this investment
3. Calculate the levered NPV
4. Calculate the levered IRR of this investment

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Market value of equity Cost of equity Market value of debt Cost of debt Tax rate $50,000,000 20% $75,000,000 10% 30% Market value of equity Cost of equity Market value of debt Cost of debt Tax rate $50,000,000 20% $75,000,000 10% 30%

Answer rating: 100% (QA)

To calculate the unlevered NPV and IRR well consider the investment without taking into account the financing or the companys capital structure The un... View the full answer