View the step-by-step solution to:

Question

You are considering investing $45,000,000 to purchase an office building. The

following are the projected ATCF's (After Tax Cash Flows) at the end of each year along with the after tax reversion (i.e. how much you plan to sell the building for). 

ATCF table.jpg


(a)What is the NPV (net present value) of this project if your required rate of return is 9.25% (annually)?

(b)What is the IRR (internal rate of return) of this project?

(c) Do you want to make the investment?

  A.Yes. Because The NPV is positive and the IRR is greater than the required rate of return 

  B. No. Because The NPV is negative and the IRR is less than the required rate of return 

  C. Unsure 

  D. Not enough information 

  E. I am more of a dog person 

6.Suppose there is another building just across the street that is very similar to the one you just valued. Next year's NOI for the other building is projected to be $775,000. What is a good approximation for the value of the building, based upon information from the cap rate question above?

ATCF table.jpg

Top Answer

View the full answer
20190923 9 Table.png

A
B
C
D
E
F
G
H
J
K
W N -
Year
0
1
2
3
4
Total
r=
9,25%
ATCF
45.000.000
1.250.000
1.450.000
2.000.000
2.275.000 - 38.025.000
IRR =
8,90%
Value
Reversion
A
55.500.000
55.500.000
>>...

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question