Question 2 Consider a 100,000 sqf office building with the following cash flows: The gross rent in year 1 is $30/sqf/year and the rents are expected to grow at 2% per year. The operating expenses in the first year are $5/sqf/year and are expected to increase at 3% per year. There are no capital expenditures. All cash flows are in arrears. The discount rate for the property is 9%. a. What is the value of the building if the building will be held and rented indefinitely? What is the cap rate at time 0? b. What is the value of the building if the building is sold at the end of 10 years at a 8% cap rate? What is the cap rate at time 0?
Question 2 Consider a 100,000 sqf office building with the following cash flows: The gross rent in year 1 is $30/sqf/year and the rents are expected to grow at 2% per year. The operating expenses in the first year are $5/sqf/year and are expected to increase at 3% per year. There are no capital expenditures. All cash flows are in arrears. The discount rate for the property is 9%. a. What is the value of the building if the building will be held and rented indefinitely? What is the cap rate at time 0? b. What is the value of the building if the building is sold at the end of 10 years at a 8% cap rate? What is the cap rate at time 0?
Chapter4A: Nopat Breakeven: Revenues Needed To Cover Total Operating Costs
Section: Chapter Questions
Problem 1EP
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Transcribed Image Text:Question 2
Consider a 100,000 sqf office building with the following cash flows: The gross rent in year 1
is $30/sqf/year and the rents are expected to grow at 2% per year. The operating expenses in
the first year are $5/sqf/year and are expected to increase at 3% per year. There are no capital
expenditures. All cash flows are in arrears. The discount rate for the property is 9%.
a. What is the value of the building if the building will be held and rented indefinitely?
What is the cap rate at time 0?
b. What is the value of the building if the building is sold at the end of 10 years at a 8%
cap rate? What is the cap rate at time 0?
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