You are considering the purchase of an industrial building for $10,450,000 today. Below, you are given the information you need to analyze the investment and decide how to proceed. Your expectations for this stabilized property include the following: first-year potential gross income of $2,050,000; vacancy and collection losses equal to 4% of potential gross income; operating expenses equal to 30% of effective gross income; and capital expenditures equal to 6% of EGI. You have arranged a mortgage loan with 60% LTV and an annual interest rate of 2.5%. The loan will be amortized over 15 years. Calculate the following for comparison to other similar properties: (a) Capitalization rate? (b) Effective gross income multiplier? 7 (c) Operating expense ratio?

You are considering the purchase of an industrial building for $10,450,000 today. Below, you are given the information you need to analyze the investment and decide how to proceed. Your expectations for this stabilized property include the following: first-year potential gross income of $2,050,000; vacancy and collection losses equal to 4% of potential gross income; operating expenses equal to 30% of effective gross income; and capital expenditures equal to 6% of EGI. You have arranged a mortgage loan with 60% LTV and an annual interest rate of 2.5%. The loan will be amortized over 15 years. Calculate the following for comparison to other similar properties: (a) Capitalization rate? (b) Effective gross income multiplier? 7 (c) Operating expense ratio?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 13P

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