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The NOI for a small income property is expected to be $155,100 for the first year. Financing will be based on a 1.20 DCR applied to the first year NOI, will have a 10 percent annual interest rate compounded monthly, and will be amortized over 20 years with monthly payments. The NO/will increase 4 percent per year after the first year. The investor expects to hold the property for five years. The resale price is estimated by applying a 9 percent terminal capitalization rate to the sixth-year NOI. Investors require a 15 percent annual rate of return on equity for this type of property. Required: a. What is the value of the equity interest in the property (i.e., the present value of the cash flow to equity)? Hint: You will need to (1) estimate the loan payment before calculating the cash flow to equity and (2) calculate the loan balance at the end of the holding period before calculating the reversion cash flow to equity when the property is sold. The reversion value to equity is roughly $1,094,000, the loan balance will be roughly $1,002,300, and the present value of the cash flow to equity is roughly $670,000. b. What is the total present value of the property (mortgage plus equity interests)? c. Based on your answer to part (b), what is the implied overall capitalization rate if that is the price you pay for the property? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the present value of the equity interest in the property? (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.) PV of cash flow to equity $ 1,636,300 Required A Required B >

The NOI for a small income property is expected to be $155,100 for the first year. Financing will be based on a 1.20 DCR applied to the first year NOI, will have a 10 percent annual interest rate compounded monthly, and will be amortized over 20 years with monthly payments. The NO/will increase 4 percent per year after the first year. The investor expects to hold the property for five years. The resale price is estimated by applying a 9 percent terminal capitalization rate to the sixth-year NOI. Investors require a 15 percent annual rate of return on equity for this type of property. Required: a. What is the value of the equity interest in the property (i.e., the present value of the cash flow to equity)? Hint: You will need to (1) estimate the loan payment before calculating the cash flow to equity and (2) calculate the loan balance at the end of the holding period before calculating the reversion cash flow to equity when the property is sold. The reversion value to equity is roughly $1,094,000, the loan balance will be roughly $1,002,300, and the present value of the cash flow to equity is roughly $670,000. b. What is the total present value of the property (mortgage plus equity interests)? c. Based on your answer to part (b), what is the implied overall capitalization rate if that is the price you pay for the property? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the present value of the equity interest in the property? (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.) PV of cash flow to equity $ 1,636,300 Required A Required B >

Advanced Engineering Mathematics
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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The NOI for a small income property is expected to be $155,100 for the first year. Financing will be based on a 1.20 DCR applied to the first year NOI, will have a 10 percent annual interest rate compounded monthly, and will be amortized over 20 years with monthly payments. The NOI will increase 4 percent per year after the first year. The investor expects to hold the property for five years. The resale price is estimated by applying a 9 percent terminal capitalization rate to the sixth-year NOI. Investors require a 15 percent annual rate of return on equity for this type of property. Required: a. What is the value of the equity interest in the property (i.e., the present value of the cash flow to equity)? Hint: You will need to (1) estimate the loan payment before calculating the cash flow to equity and (2) calculate the loan balance at the end of the holding period before calculating the reversion cash flow to equity when the property is sold. The reversion value to equity is roughly $1,094,000, the loan balance will be roughly $1,002,300, and the present value of the cash flow to equity is roughly $670,000. b. What total present value of the property (mortgage plus equity interests)? c. Based on your answer to part (b), what is the implied overall capitalization rate if that is the price you pay for the property? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the present value of the equity interest in the property? (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.) PV of cash flow to equity 1,636,300- < Required A Required B >
Transcribed Image Text:The NOI for a small income property is expected to be $155,100 for the first year. Financing will be based on a 1.20 DCR applied to the first year NOI, will have a 10 percent annual interest rate compounded monthly, and will be amortized over 20 years with monthly payments. The NOI will increase 4 percent per year after the first year. The investor expects to hold the property for five years. The resale price is estimated by applying a 9 percent terminal capitalization rate to the sixth-year NOI. Investors require a 15 percent annual rate of return on equity for this type of property. Required: a. What is the value of the equity interest in the property (i.e., the present value of the cash flow to equity)? Hint: You will need to (1) estimate the loan payment before calculating the cash flow to equity and (2) calculate the loan balance at the end of the holding period before calculating the reversion cash flow to equity when the property is sold. The reversion value to equity is roughly $1,094,000, the loan balance will be roughly $1,002,300, and the present value of the cash flow to equity is roughly $670,000. b. What total present value of the property (mortgage plus equity interests)? c. Based on your answer to part (b), what is the implied overall capitalization rate if that is the price you pay for the property? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the present value of the equity interest in the property? (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.) PV of cash flow to equity 1,636,300- < Required A Required B >
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