Consider an income producing property that according to your assumptions and estimations is currently worth $4M on an unlevered basis when a 7.5% required rate of return is applied. One of the assumptions that you have made when arriving at that estimate is that you will sell the property in 6 years for a CAP of 8%, which translates to $4.4M at that future point in time. a. At what price will you sell the property in 6 years if all your assumptions materialized except that you will sell the property for a CAP of 7% instead of 8%? Show your calculations. b. All other things equal, by how much the situation described in part a affects the current value of the property.
Consider an income producing property that according to your assumptions and estimations is currently worth $4M on an unlevered basis when a 7.5% required rate of return is applied. One of the assumptions that you have made when arriving at that estimate is that you will sell the property in 6 years for a CAP of 8%, which translates to $4.4M at that future point in time. a. At what price will you sell the property in 6 years if all your assumptions materialized except that you will sell the property for a CAP of 7% instead of 8%? Show your calculations. b. All other things equal, by how much the situation described in part a affects the current value of the property.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...
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Consider an income producing property that according to your assumptions and estimations is currently worth $4M on an unlevered basis when a 7.5% required
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