Question 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? O a. $832,534 O b. $ 4,093,195 O. $ 183,158 O d. $2,120,996 Question 9 On the basis of the data provided at question 6, calculate your IRR based on BTCF. Oa. 18.11% O b. 25.27% O. 25.72% O d. 24.17%
Question 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? O a. $832,534 O b. $ 4,093,195 O. $ 183,158 O d. $2,120,996 Question 9 On the basis of the data provided at question 6, calculate your IRR based on BTCF. Oa. 18.11% O b. 25.27% O. 25.72% O d. 24.17%
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
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Please answer practice question 9
Transcribed Image Text:Question 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?
O a. $832,534
O b. $ 4,093,195
O. $ 183,158
O d. $2,120,996
Transcribed Image Text:Question 9
On the basis of the data provided at question 6, calculate your IRR based on BTCF.
Oa.
18.11%
O b. 25.27%
O. 25.72%
O d. 24.17%
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