{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# IP-4 - PROBLEM 6-2 Given Per Square Foot A Building size(Sq...

This preview shows pages 1–2. Sign up to view the full content.

Given Per Square Foot Total Squar A B A Building size (Sq. ft.) 80,000 Rent \$100 \$120 \$8,000,000 Maintenance (fixed cost) (23) (30) (1,840,000) Net Operating Income \$77 \$90 \$6,160,000 % Change in NOI Selling Price Information A B A Sales multiple for NOI/sq. ft. 6 ? 6 Capitalization rate (1/Sales multiple) 16.67% ? 16.67% Estimated property value \$462 ? \$36,960,000 Solution Per Square Foot Total Squar Alternative Valuation Procedure A B A Risk free rate 5.5% 5.5% 5.5% Implied value of maintenance costs \$(418) \$(545) \$(33,454,545) Implied revenue value \$880 \$1,056 \$70,414,545 Implied revenue multiple 8.80 8.80 8.80 Implied revenue cap rate 11.36% 11.36% 11.36% Property value/sq. ft. \$462.00 \$510.76 \$36,960,000.00 Implied multiple 6 5.68 6 Implied cap rate 16.67% 17.62% 16.67% Building A % Change in Revenues -20% 0% 20% Revenues \$6,400,000 \$8,000,000 \$9,600,000 Maintenance (fixed cost) (1,840,000) (1,840,000) (1,840,000) Net Operating Income \$4,560,000 \$6,160,000 \$7,760,000 % Change in Revenues -20.00% 0.00% 20.00% % Change in NOI -25.97% 0.00% 25.97% PROBLEM 6-2 a. Using the multiple of operating income, Building B can be valued at 6 x 8,100,000 = \$48,600,000. b. Recognize that Building B has higher fixed costs (as a percentage of revenues) and therefore higher o It can be seen from above that Building B is more sensitive to ch revenues--i.e., it has a higher operating leverage. This situation

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}