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On the basis of the data provided at question 6, calculate your IRR based on BTCF. O a. 18.11% O b. 25.27% 25.72% O d. 24.17%

On the basis of the data provided at question 6, calculate your IRR based on BTCF. O a. 18.11% O b. 25.27% 25.72% O d. 24.17%

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please only answer practice question 9. 

Answers for question 6 & 7 provided.

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buestion 6 The following 5 questions are based on this situation: Suppose you are considering the acquisition of a hotel that is currently trading at $ 67 million. The current return on such investments on the market is estimated at 10%. The investor's required rate of return is of 11%. The asset's (annual) NOI for the next 5 years [i.e. the current lease term) is $ 6,000,000. At the end of the current lease, you expect the NOI to increase to $ 6,500,000 for the foreseeable future. You anticipate selling the property five years from today. The building to land value ratio is 3:1 and the depreciable life of the property is 39 years. You contacted your banker who is willing to give you a LTV of 80%. The mortgage loan details are: 7.5% 30-year monthly amortizing loan. The tax rates are as follows: 22% income tax, 25% depreciation recapture tax, 20% capital gains tax. Consider straight-line depreciation. The going-in Cap rate is 7%. 5 years later, 50bps additional risk premium should be applied to estimate the going-out cap rate. The cost of sales( and purchase) is 3%. What is the taxable income in year 4? $ 832,534 Oa. O b. $ 4,093,195 $ 183,158 O d. $ 2,120,996
Transcribed Image Text:buestion 6 The following 5 questions are based on this situation: Suppose you are considering the acquisition of a hotel that is currently trading at $ 67 million. The current return on such investments on the market is estimated at 10%. The investor's required rate of return is of 11%. The asset's (annual) NOI for the next 5 years [i.e. the current lease term) is $ 6,000,000. At the end of the current lease, you expect the NOI to increase to $ 6,500,000 for the foreseeable future. You anticipate selling the property five years from today. The building to land value ratio is 3:1 and the depreciable life of the property is 39 years. You contacted your banker who is willing to give you a LTV of 80%. The mortgage loan details are: 7.5% 30-year monthly amortizing loan. The tax rates are as follows: 22% income tax, 25% depreciation recapture tax, 20% capital gains tax. Consider straight-line depreciation. The going-in Cap rate is 7%. 5 years later, 50bps additional risk premium should be applied to estimate the going-out cap rate. The cost of sales( and purchase) is 3%. What is the taxable income in year 4? $ 832,534 Oa. O b. $ 4,093,195 $ 183,158 O d. $ 2,120,996
Question 7 On the basis of the data provided at question 6, what is the overall gain during the sale of the property? answered O a. $ 10,600,000 O b. $ 17,042,308 O c. $ 23,508,974 O d. $ 19,422,308 Question 8 On the basis of the data provided at Question 6, how much (in $) is the capital gain tax? Not yet O a. $9,123,160 O b. $ 6,671,785 answered P Flag question O c. $ 3,413,333 O d. $ 1,824,632 On the basis of the data provided at question 6, calculate your IRR based on BTCF. Question 9 Not yet answered O a. 18.11% Ob. 25.27% Oc. 25,72% O d. 24.17%
Transcribed Image Text:Question 7 On the basis of the data provided at question 6, what is the overall gain during the sale of the property? answered O a. $ 10,600,000 O b. $ 17,042,308 O c. $ 23,508,974 O d. $ 19,422,308 Question 8 On the basis of the data provided at Question 6, how much (in $) is the capital gain tax? Not yet O a. $9,123,160 O b. $ 6,671,785 answered P Flag question O c. $ 3,413,333 O d. $ 1,824,632 On the basis of the data provided at question 6, calculate your IRR based on BTCF. Question 9 Not yet answered O a. 18.11% Ob. 25.27% Oc. 25,72% O d. 24.17%
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