Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments. The anticipated annual cash inflows from each are as follows: Windy Acres Yearly Aftertax Cash Inflow $90,000 95,000 110,000 125,000 130,000 Probability 0.2 0.2 0.2 0.2 0.2 Windy Acres Hillcrest Apartments Hillcrest Apartments Windy Acres S Hillcrest Apartments S Expected cash flow Yearly Aftertax Cash Inflow $95.000 100,000 110,000 120,000 a. Find the expected value of the cash flow for each apartment complex. (Enter the answers in thousands.) Probability c. Which apartment complex has more risk? multiple choice Hillcrest Apartments Windy Acres 0.2 0.3 04 0.1 b. What is the coefficient of variation for each apartment complex? (Do not round intermediate calculations. Round the final answers to 4 decimal places.) Coefficient of variation

Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments. The anticipated annual cash inflows from each are as follows: Windy Acres Yearly Aftertax Cash Inflow $90,000 95,000 110,000 125,000 130,000 Probability 0.2 0.2 0.2 0.2 0.2 Windy Acres Hillcrest Apartments Hillcrest Apartments Windy Acres S Hillcrest Apartments S Expected cash flow Yearly Aftertax Cash Inflow $95.000 100,000 110,000 120,000 a. Find the expected value of the cash flow for each apartment complex. (Enter the answers in thousands.) Probability c. Which apartment complex has more risk? multiple choice Hillcrest Apartments Windy Acres 0.2 0.3 04 0.1 b. What is the coefficient of variation for each apartment complex? (Do not round intermediate calculations. Round the final answers to 4 decimal places.) Coefficient of variation

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 7E

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Mr. Sam Golff desires to invest a portion of his assets in rental property. He has narrowed his choices down to two apartment complexes, Palmer Heights and Crenshaw Village. After conferring with the present owners, Mr. Golff has developed the following estimates of the cash flows for these properties. Palmer Heights Yearly AftertaxCash Inflow(in thousands) Probability $60 0.1 65 0.2 80 0.4 95 0.2 100 0.1 Crenshaw Village Yearly AftertaxCash Inflow(in thousands) Probability $65 0.2 70 0.3 80 0.4 90 0.1 a. Find the expected cash flow from each apartment complex. (Enter your answers in thousands (e.g, $10,000 should be enter as "10").) b. What is the coefficient of variation for each apartment complex? (Do not round intermediate calculations. Round your answers to 3 decimal places.) c. Which apartment complex has more…
Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments. The anticipated annual cash inflows from each are as follows: Windy Acres Hillcrest Apartments Yearly Aftertax Cash Inflow Probability Yearly Aftertax Cash Inflow Probability $30,000 0.2 $35,000 0.4 35,000 0.2 40,000 0.2 50,000 0.2 50,000 0.1 65,000 0.2 60,000 0.3 70,000 0.2 a. Find the expected value of the cash flow for each apartment complex. (Enter the answers in thousands.) Expected cash flow Windy Acres $ Hillcrest Apartments $ b. What is the coefficient of variation for each apartment complex? (Do not round intermediate calculations. Round the final answers to 4 decimal places.) Coefficient of variation Windy Acres Hillcrest Apartments c. Which apartment complex has more risk?…
Mrs. Dionne Jackson desires to invest a portion of her assets in rental property. She has narrowed her choices down to two apartment complexes, Palmer Heights and Crenshaw Village. After conferring with the present owners, Mrs. Jackson has developed the following estimates of the cash flows for these properties. Palmer Heights Yearly Aftertax Cash Inflow (in thousands) Probability $ 60 0.1 65 0.2 80 0.4 95 0.2 100 0.1 Crenshaw Village Yearly Aftertax Cash Inflow (in thousands) Probability $ 65 0.2 70 0.3 80 0.4 90 0.1 Find the expected cash flow from each apartment complex. Expected cash flow (in thousands) palmer heights crenshaw village
Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $2,700 for each of the next 4 years and $12,408 in 5 years. Her research indicates that she must earn 4% on low-risk assets, 6% on average-risk assets, and 15% on high-risk assets. a. Determine what is the most Laura should pay for the asset if it is classified as (1) low-risk, (2) average-risk, and (3) high-risk. b. Suppose Laura is unable to assess the risk of the asset and wants to be certain she's making a good deal. On the basis of your findings in part a, what is the most she should pay? Why? All else being thesame, what effect does increasing risk have on the value of anasset? Explain in light of your findings in part a.
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You paid $725,000 for a duplex and financed 75% of the purchase price. Your forecasted cash flows for the property are listed below and you expect to sell the property for $740,000 at the end of year 5 and you owe $499,318.73 on the property. What is your expected internal rate of return? Cash flow - year 1 $16,000 Cash flow - year 2 $17,000 Cash flow - year 3 $16,000 Cash flow - year 4 $15,000 Cash flow - year 5 $18,000 Answer should be formatted as a percent with two decimal places.
Assume that you purchase a property for $200,000 and it generates annual cash flows of $30,000 in years 1-3; and $45,000 in years 4&5. You are able to sell it at the end of year 5 for $400,000. Calculate the IRR for this investment property.
Juliana is considering an investment proposal with the following cash flows: Initial investment-depreciable assets $55,000 Net cash inflows from operations (per year for 10 years) 11,000 Disinvestment 0 a. Determine the payback period. Round your answer to one decimal place; for example, enter 1.4 for 1.44 or 1.5 for 1.45. Answer years For parts b. and c., round your answers to three decimal places if applicable. For example, enter 0.084 for 0.0844 or 0.085 for 0.0845. b. Determine the accounting rate of return on initial investment. Answer c. Determine the accounting rate of return on average investment.
The following proforma shows unleveraged cash flows for a property if an investor were to purchase it today and resell it at the end of the third year: (Show answer in Excel) What is the present value of the each of the discounted cash flows from Year 1, Year 2, and Year 3, using a discount rate of 8.75% (hint: calculate each on separately)? What is the Net Present Value of this investment?
The following data are from an after-tax cash flow analysis in year 1 for anew MACRS 5-year property. How much money would be saved in year 1 if 100% bonus depreciation is used? Initial Investment = $180,000 Regular MACRS Depreciation Deduction in Year 1 = $36,000 Before-Tax-and-Loan Cash Flow = $280,000 Loan Principal Payment = $17,500 Interest on Loan = $5,650. a. $30,240 b. $75,600 c. $37,800 d. $36,000.
The owner of Adolla Bar and Restaurant is considering expanding the business. He is choosing between two alternatives: (1) build a new restaurant, or (2) buy and renovate an old building. The projected cash flows from these two alternatives are as follows: Build Buy and renovate Initial cash outflow (Year 0) 332,000 215,000 Cash inflows (Years 1 to 10) 46,000 39,500 Cash inflows (Years 11 to 20) 46,000 - The required rate of return is 9%. Ignore tax impacts. Required: Calculate the following for the projects: Payback period Accounting rate of return using (i) initial investment and (ii) average investment as the denominator Net present value Internal rate of return