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- 1.You’ve spent $10,000 searching for an investment property. Now, you’re considering investing in a cottage near Brighton Beach. You can buy the house for $300,000 with cash, earn $20,000 per year in rent and pay $7,000 per year in HOA, taxes, and other expenses. Assume you’ll be able to sell the house in ten years for $400,000 (the "salvage value"). Your second-best investment alternative would earn a return of 6.50%. Calculate in Excel the NPV and IRR of this investment.Suppose that we can describe the world using two states and that two assets are available, asset K an asset L. We assume the asset’s future prices have the following distribution State Future Price Asset K Future Price Asset L 1 $55 $60 2 $45 $30 The current price of asset K is $50, and the current price of asset L is $50. 5. You plan to buy a home for $100,000 in the future. You want to guarantee that you will have the money.What would you buy/sell today to accomplish this, and what would it cost today?A developer must choose between two projects: In Project A, she would build an apartment building for $200 million immediately and then collect $300 million in rent next year. In Project B, she would build condominiums for $200 million immediately and spend another $300 million on construction next year. Then, in the year after that, she would collect $400 million in condo purchases. The discount rate is 25%. (a) Why are such projects commonly evaluated with the concept of present value? (b) Use present value to determine which project the developer should choose.
- You plan to buy a real estate property. You have $838 to invest and aim to have $2983.16. You plan on investing in a cryptocurrency ETF that you think will have a return of 30.6%. How long until you reach your goal? Include up to 2 decimal places. Answer:Pm.3 Find out the profitability index (PI) of the following project assuming the required rate of return is 8%. Will you accept the project? Why? year 0 1 2 3 4 5 Cash Flow ($) -250,000 50,000 40,000 120,000 80,000 45,000 Group of answer choices Accept the project because the PI is equal to 1.06, which is larger than 0. Accept the project because the PI is equal to 0.98, which is larger than 0. Reject the project because the PI is equal to 1.06, which is larger than 1. Reject the project because the PI is equal to 0.98, which is lower than 1. Accept the project because the PI is equal to 1.06, which is larger than 1.You are thinking about buying a real estate property. If you buy the property, you think you will sell it for $714663 in 8 years. If your required return on investments of this risk is 10.54%, what is the most that you should be willing to pay for the property? Round to 2 decimal places. Include a dollar sign ($) or percent (%) as appropriate.
- 23 The Hanks Co is considering two projects. Project A consists of building a bee sanctuary on the firm's small parcel of land. Project B consists of building a retail store on on that same parcel. The parcel can accommodate only one of the projects. Which method of analysis is most appropriate for an analyst to employ? A. Accounting rate of return B. Profitability index C. NPV D. Payback E. IRRSuppose that we can describe the world using two states and that two assets are available, asset K an asset L. We assume the asset’s future prices have the following distribution State Future Price Asset K Future Price Asset L 1 $55 $60 2 $45 $30 The current price of asset K is $50, and the current price of asset L is $50. You plan to buy a home for $100,000 in the future. You want to guarantee that you will have the money. What would you buy/sell today to accomplish this, and what would it cost today?• Examine present values, future values, and efficient market hypothesis. • Synthesize knowledge of basic tools of finance. Computing the present value: 1. You are thinking of buying a six-acre lot for $70,000. The lot will be worth $100,000 in 5 years. A. Should you buy the lot if r = 0.05? B. Should you buy it if r = 0.10? The asymmetric information problem:
- O Δ You work for a construction company that is considering a bid on a project to modernize the power grid in a country that is recovering from an earthquake. The cost to prepare the documentation that is necessary to submit the bid is $50,000. If a bid is submitted, you estimate that the project will be awarded with probability 0.5. The company's profit depends on the political situation prevalent in the country at the time of the project. Based on your experience, you conclude that with probability 0.2, the country would present favorable conditions and that the company would earn $240,000; with probability 0.7, the country would present stable conditions and the company would earn $140,000; and that with probability 0.1, the country would present unstable conditions and the company would lose 560,000. a. Would you recommend that the company bid on the project? b. Before your company bids on the project, what is the maximum amount you would pay for a forecast of the political…Assume that the price of real estate is determined by P=PV(all cash flows generated by the real estate). After you have graduated you work for some years and can save some money. You decide to invest in a house which you want to rent out for a rate of 12,000 pound per month. Assume that the rental rate will increase with 1.2% per year (which is 0.1% per month). (For the sake of simplicity, also assume that there are no further costs involved e.g. renovating or repair). a) As the market risk of renting out the house is low, you think that a discount rate of 5.5% (APR with monthly compounding) would be appropriate. What is the price of the house under the assumption that the cash flows from rent will last forever? b) If discount rate is 1% lower than 5.5% what is the price of the house? c) You want to make the valuation of the house more realistic by assuming that the time horizon for the valuation should be 50 years. Again, you assume that the house will generate SEK 12,000 rental…Suppose that you could invest in the following projects but have only $24,480 to invest. Which projects would you choose? Project Cost NPV w $ 7,970 $ 3,000 x 10,990 7,530 y 8,500 4,280 z 6,750 3,890 You should invest in project(s)?
