Real Estate Capital Markets Spring 2016
Midterm quiz solutions
Short answer (25 points)
1. B
Statement (b) is true, but statements (a) and (c) are false. (a) is false because the user cost model only
defines the relationship between prices and rent
NYU Stern
Real Estate Capital Markets
Spring 2016
FINAL EXAM: ANSWER BOOKLET
[WRITE ALL YOUR ANSWERS IN THIS BOOKLET. PLEASE HAND THIS IN AT THE END OF THE QUIZ]
WRITE YOUR NAME HERE:
WRITE YOUR NETID NUMBER HERE (e.g. ABC123):
110 minutes
110 points in t
Final Exam Solutions
Real Estate Capital Markets
Spring 2016
Multiple choice 21 points (3 points per part no partial credit)
1. B
If you think home prices will grow, it is better to be an owner than a renter. The other two
statements are not true, however
Getting cash flow from net
income
Cashflow=Net Income plus Depreciation minus
Change in NWC
Sale of assets: rules
BV=book value, SP=sale price, T=tax rate
If SP>BV, you make SP-taxes=SP-(SP-BV)*T
If SP=BV, you make SP-taxes=SP-0=SP
If SP<BV: then:
I
Cost of Capital
Andre de Souza
Introduction
In lecture 1 we said
The correct rate to discount risky cash flows is the
rate paid by other assets in the market which have
similar risk
Hence the opportunity cost of capital
Until now this was given
This
Rules for making investment
decisions
Andre de Souza
1
Outline
NPV rule
IRR and problems with IRR
Capital rationing
Payback rule
Mutually exclusive projects with different lives
2
The problem
We are managers in a firm
We have access to a variety of pro
Cash Flows
Andre de Souza
Outline
The five steps of project valuation
Basic rules for cash flows
Kinds of cash flows
During projects
At the beginning of projects
At the end of projects
Our problem
We want to decide what projects to take
We saw tha
Review
PV/FV formula
What is r? What is T?
Consider:
$200 at year 5 and its PV today
What does that PV tell you?
$200 at year 5 and its PV at year 1
What does that PV tell you?
$500 today and its FV at year 10
What does that FV tell you?
Effectiv
The Time Value of Money
Andre de Souza
Outline
Time value of money for riskless cashflows
Present values and future values
Multiple cashflows
Annuities and perpetuities
Growing annuities and perpetuities
Fair values
Riskless cashflows
Risky cashfl
Real Options
Andre de Souza
Real Options
So far:
We made only one choice: take the project or not
In real life:
As time passes, more information becomes
available: for example,
If people like our product, we might expand our
business, increase produc
Corporate Finance
Arundel Partners: the sequel project
Instructions
The objective is to compute the value of a sequel right. You can base your calculations on
revenues and costs while ignoring taxes (i.e., suppose cash flows are simply revenues minus
cost
What you need to know
What is fair value?
How do you find the fair value of:
An asset with riskfree cashflows?
An asset with risky cashflows?
Single rule: PV of expected cashflows at the OCC
What is the OCC?
What do we use for the OCC?
For riskfre
Fair Values of risky
and riskfree assets
Andre de Souza
Fair Values
Assume there is a market in the background where
assets with various risks are being bought and sold
Among these is the riskfree asset
If you know the expected cashflows on any asset,
Corporate Finance
Spring 2017
Problem Set 2: Rules for Investment Decisions
Solutions
1. You are given a project with the following cash flows: C0 = 6, 750, C1 = 4, 500,
C2 = 18, 000.
(a) Calculate the NPV of the project with discount rates of
i. 0%
15,75
Cash flows:
examples
Making bings
Over the last five years, the Billabong Company has spent $25 million
developing a new product: bings. It is considering whether to build a
plant to make bings.
Today is 1/1/01. The cost of the plant is $10 million to b
Bings
Timeline
End of year (how many years from today)
Date
Event
0
01/01/01
Construction starts
Start with depreciation
Investment is $10 M. This can be depreciated to zero over four years as soon as the plant starts producing
Depreciation per year
2.5
I
Corporate Finance
Problem Set 4: Real Options
Due: Beginning of class, April 5
1. Inspired by the Arabian Nights, you have had the idea of creating a lock that opens
when a password is said. You have drawn up the blueprints and applied for a patent.You
ar
Corporate Finance
Andre de Souza
Corporate Finance
Financial tools for analyzing corporate
decision-making
Two sides:
Decisions about raising capital (Capital structure)
Decisions about using capital (Capital budgeting)
Our focus
Capital budgeting
D
Replaceable Mutually Exclusive Projects with
different lives
What are MEPs?
You can take one or the other, but not both
Replaceable?
How do we apply the NPV rule when the two MEPs
have different lives?
Example: I can buy one of two cars, A or B, for
Corporate Finance
Spring 2017
Problem Set 2
Due: start of class Wed Feb 22
1. You are given a project with the following cash flows: C0 = 6, 750, C1 = 4, 500,
C2 = 18, 000.
(a) Calculate the NPV of the project with discount rates of
i. 0%
ii. 50%
iii. 100
A project to consider
You are the inventor of pizza-in-a-cone. Youre
thinking of setting up a restaurant in Times Sq. The
investment required is $10m
The opportunity cost of capital is 10%
You will find out if people love your idea or hate it in
one ye
Example
You are considering buying 1 share of Exxon Mobil (XOM)
to sell in a year. The price per share is $50. The stock can
either do well or badly with equal probability. If it does
well, it will pay a dividend one year from now of $5, and
its stock pr
Corporate Finance HW 3
Due Monday March 20 at the start of class.
1. This problem is about the project to make cans of soup that we talked about in class.
As in that example, we know that 10 cans are sold each period, at $10 per can, the
cost of producing
Corporate Finance, Spring 2017
The Super Project: Instructions
Due Wednesday March 29, at the start of class
Approach
Please provide answers to all the questions below. Keep your answers brief and to the point.
For example, the answer to question 2(a) sho
Corporate Finance
Problem Set 1
Due: Beginning of Class, Monday February 6
1. You have to pay $12,000 a year in school fees, payable at the beginning of the year,
for four years. The interest rate is 8% effective annual.
(a) How much do you need to set as
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
Commission File Number: 001-14965
The Goldma
Equity Research
2011 Orthopedic Outlook
Healthcare Medical Devices
Headwinds Remain but Growth Likely to Accelerate Modestly
January 3, 2011
Industry Report
2011 Outlook. After interviewing multiple industry contacts, we believe the orthopedic space will
November 28, 2012
2013 US Equity Outlook:
Selectively seeking growth
Portfolio Strategy Research
Look past near-term political risk to improving growth prospects
US economy will gain strength as 2013 progresses
David J. Kostin
The turbulent political envi