Q1(a). The single-family home won't generate any income after rent, but you anticipate a significant amount of appreciation. According to your estimates, the cash flows from the single- family home during your three-year holding period will be: Single Family Home Investment Purchase Sale Total Cash Flows S $ S Year 0 (500,000) $ $ (500,000) S - Year 1 - - SS St S Year 2 - - $ $ S Year 3 660,000 660,000 Calculate the Net Present Value for the Single Family Home Investment. Show your work by either showing the Excel Function you used or laying out the formula you used to solve for NRV

Q1(a). The single-family home won't generate any income after rent, but you anticipate a significant amount of appreciation. According to your estimates, the cash flows from the single- family home during your three-year holding period will be: Single Family Home Investment Purchase Sale Total Cash Flows S $ S Year 0 (500,000) $ $ (500,000) S - Year 1 - - SS St S Year 2 - - $ $ S Year 3 660,000 660,000 Calculate the Net Present Value for the Single Family Home Investment. Show your work by either showing the Excel Function you used or laying out the formula you used to solve for NRV

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter16: Real Estate And High-risk Investments

Section: Chapter Questions

Problem 1FPC

See similar textbooks

Similar questions

Two investors participate in an investment project and, after an analysis economic, the following results were obtained: • Investor A. TMAR: 13.45; NPV: 570,000. • Investor B. TMAR: 13:00; NPV: −2450. Explain the value of the results of investor B based on the recovery of your investment, profits and your minimum acceptable rate of return.
A. Assume that you have completed your plans and proformas for the next year of operations. The upcoming year looks promising. What would you most likely do from the following list? a. From your proformas project your company’s weighted average cost of capital and return on assets, and compare the two b. Take a vacation because you have been working so hard c. Purchase a new house for your personal use because the future is looking so good d. Make sure that your company’s weighted average cost of capital exceeds your company’s return on assets, if not, rework your plans and proformas B. Assume that all sales are on account. If the average accounts receivable balance was $1,000,000 and accounts receivable turnover was 12 for the last year of operations, what was sales revenue? a. $10,000,000 b. $15,000,000 c. $12,000,000 d. $6,000,000
3. A real estate company is considering the investment on two types of apartments: condo apartments and two-bedroom apartments. The expected profits for the two types at different scenarios and the corresponding probabilities are shown in Table 3. Before starting to profit, the company should first invest on the two types of apartments for 20 billion RMB on A1 and 15 billion RMB on A2 respectively. Please decide by calculation which type of apartments is worth investing for this company? Table 3 Expected profits by different scenarios (The profits are in billion RMB Yuan) Expected Sale Forecast Good Normal Bad Types/Probabilities 0.5 0.3 0.2 Condo (A,) 50 25 15 Two-bedroom (Az) 80 0. -25 3/3 1L
MIA Q.1) Your company expects to earn at least 18 percent on its investments. You have to choose between two similar projects (A&B). Below is the cash information for each project. Which of the two projects would you fund if the decision is based only on financial information by using net present value model? if you use payback model which project you will choose? show your calculations? Year 0 1 2 Outflow 225000 190000 0 0 Inflow C.f DE P.V Year Outflow Inflow c. f = R-C C. F D. F P.V 3 30000 0 150000 220000 -225000-190000 150000 10000 - (1+k)" 0 300000 0 5 7 30000 0 30000- 215000 205000 197000 100000 215000 175000 197000 70000 0.847 0.718 3.669 0.516 0.437 0.37 0.314 -225000-160930 107700 115710 110 94076475 72890 219743 7: Project A 4 0 1 2 100000 0 P.V of of WPV = 5PV Project B 3 4 50000 0 50000 150000 250000 250000 200000 250000 -50000 150000 300000 1 0-8470-718 0.609 0.516 -3.000.0042356107700 اسمان M 6 0 wp-v-11975 11976 15 7 50000 30000 200000 180000 120000 150000 180000 90000…
Assume that you were given $100,000 to invest in financial assets, discuss the following: Explain what your investment portfolio would look like. Share what you believe is your risk tolerance
Assume that the price of real estate is determined by P=PV(all cash flows generated by the real estate). After you have graduated you work for some years and can save some money. You decide to invest in a house which you want to rent out for a rate of 12,000 pound per month. Assume that the rental rate will increase with 1.2% per year (which is 0.1% per month). (For the sake of simplicity, also assume that there are no further costs involved e.g. renovating or repair). a) As the market risk of renting out the house is low, you think that a discount rate of 5.5% (APR with monthly compounding) would be appropriate. What is the price of the house under the assumption that the cash flows from rent will last forever? b) If discount rate is 1% lower than 5.5% what is the price of the house? c) You want to make the valuation of the house more realistic by assuming that the time horizon for the valuation should be 50 years. Again, you assume that the house will generate SEK 12,000 rental…
Julie wants to borrow $10,250 from you. She has offered to pay you back $12,250 in a year. If the cost of capital of this investment opportunity is 12%, what is its NPV? Question content area bottom Part 1 The NPV of the investment is $enter your response here. (Round to the nearest cent.)
Explain the market of loanable funds and your role as a A. borrower when you buy your next vehicle AND B. saver after selling your first home and profiting $100,000. • You are opening your own small business. You will need the capital to begin your business plan. Utilizing chapter 22 with figure 22.2. consider and explain your timeline of production for your small business.
3. An entrepreneur has two projects to choose between. Both require an investment of $1 which must be borrowed. The projects produce gross returns in one year as follows.: Project Risky Safe payoff if failure ($) payoff if success ($) 10 probability of success 2/10 6/10 Suppose there are 100 such entrepreneurs. A bank cannot observe the project choice of an entrepreneur. Call the gross repayment the loan requires when the project succeeds R: i What is the relationship between the R the bank charges and the project chosen by the entrepreneur? Explain in detail ii. Over what ranges of R will the safe and risky projects, respectively, be chosen? What is the maximum R banks can charge consistent with the entrepreneur choosing the safe project? Explain. ii. What R will banks charge and why?
• Examine present values, future values, and efficient market hypothesis. • Synthesize knowledge of basic tools of finance. Computing the present value: 1. You are thinking of buying a six-acre lot for $70,000. The lot will be worth $100,000 in 5 years. A. Should you buy the lot if r = 0.05? B. Should you buy it if r = 0.10? The asymmetric information problem:
E) You are an ángel investor, and 4 entrepreneurs have approached you to build some innovative folding tables, and the proposals are as follows. Project A, an investment of 499189 and annual cash flows respectively of 216982, 46543, 237780 and 531707. Project B, an investment of 455199 and annual cash flows respectively of 332309, 50801, 58123 and 322548. Project C, an investment of 508746 and annual cash flows respectively of 158321, 494359, 240543 and 98899. Project D, an investment of 557203 and annual cash flows respectively of 238377, 112884, 332960 and 311611. If the rate expected by you is 13.33% per year of compound interest. Which project is more profitable according to the NPV (Net Present Value)? OPTIONS: A B C D
A company is considering three alternative Investment projects with different net cash flows. The present value of net cash flows is calculated using Excel and the results follow. Potential Projects Present value of net cash flows (excluding initial investment) Initial investment Complete this question by entering your answers in the tabs below. a. Compute the net present value of each project. b. If the company accepts all positive net present value projects, which of these will It accept? c. If the company can choose only one project, which will it choose on the basis of net present value? Required A Required B Compute the net present value of each project. Potential Projects Project A Present value of net cash flows Initial investment Net present value Required C Project E Project C $10,685 (10,000)