Investment problems homework

Business Finance

Saint Cloud State University

Question Description

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Please check the instructions on attachment file and solve the problems. Make sure you upload completed worksheet here and all work have to be typed in word document.

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Example on purchasing property with cash versus financing Assumptions: Property Purchase Price: $500,000 Monthly Gross Revenue: $7,000 Monthly Operating Expense: $2,500 Investor’s Tax Rate: 30% Investor U (unleveraged): Pays all cash Investor L (leveraged): Pays 20% down and takes out a loan (mortgage) for the balance. Loan terms 30 years, 8% interest rate. What is the after tax return for each investor? Investor U – Unleveraged (Pays with all cash) Cash investment at time of purchase = Gross Revenue -OPE EBIT -Interest EBT Taxes (30%) NI -Principal NI after Prin Pmt After tax return = Year end CF/Initial Investment Investor L - Leveraged Cash investment at time of purchase = Gross Revenue -OPE EBIT -Interest EBT Taxes (30%) NI -Principal NI after Prin Pmt After tax return = Year end CF/Initial Investment You are considering purchasing this property for $1.2 million and taking out a mortgage for 80% LTV (Loan to Value). Calculate the following: 1. DCR = NOI/DS 2. Breakeven Occupancy = (DS+OE)/PGI 3. Operating Expense Ratio = OE/EGI 4. ROI = NOI/Investment 5. ROE = BTCF/Equity ...
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