You are an employee of University Consultants, Ltd., and have been given thefollowing assignment. You are to present an investment analysis of a new smallresidential income producing property for sale to a potential investor. The asking price forthe property is $1,250,000; rents are estimated at $200,000 during the first year and areexpected to grow at 3 percent per year thereafter. Vacancies and collection losses areexpected to be 10 percent of rents. Operating expenses will be 35 percent of effectivegross income. A 70 percent loan can be obtained at 11 percent interest for 30 years. Theproperty is expected to appreciate in value at 3 percent per year and is expected to beowned for five years and then sold.
A. What is the investor's expected before-tax internal rate of return on euqity invested (BTIRR)
B. What is the first year debt coverage ratio?
C. What is the terminal capitalization rate?
D. What is the NPV using a 14% discount rate? What does this mean?
E. What is the profitability index using a 14% discount rate? What does this me?