{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

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

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

View Full Document Right Arrow Icon
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
Background image of page 1

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

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}