Use the following information to answer the questions. Commercial Property Lease
ID: 2805953 • Letter: U
Question
Use the following information to answer the questions. Commercial Property Leaseable space= 300,000 sqft Cap Expenditures = 20% of EGI Average Annual Rent = $17.00/Sqft LTV = 80% Average Annual Growth = 2.5%/year Loan Interest Rate = 6% V&C Losses = 8% of PGI Amortization = 30 yrs Operating expenses = 35% of EGI % Bldg/Total Value = 75% Miscellaneous Income = $1.50/sqft Corporate tax rate = 30% MI annual growth = 2%/year Cap Gains tax rate = 15% going-out cap rate = 10.5% accum dep tax rate = 25% discount rate = 6% purchase price = $22.5M What is the equity dividend rate? A 10.3% B 22.6% C 32.6% D 25.5% What is the IRR of the before-tax unlevered cash flows? A 9.19% B 18.34% C 17.76% D 14.47%
Explanation / Answer
ans of equity capitalization rate : Potential gross income : 100% rental income: area of property * rent per sqft = 300000*17=$5100000
since its % building/ total value =75% , operating expenses =35% *3825000 , v&c losses= 8% *5100000 =408000
Effective gross income : 75% *5100000 - operating expenses - misclleneous expenses -V&C Losses
=3825000-1338750-337500-408000 = $1740750 ltv=80% = mortagage loan / apprasail value
To find out equity dividend ratio : pre tax cash flows / initial investment
to find out net operating income : gross operating income - operating expenses =3825000-1338750= $2486250
to find out pre tax cashflows : net operating income- mortagage payment =2486250-1136571= $1349678
going out cap rate= Net operating income / value of the property value of the property = 2486250 /10.5% =$23678571
considering this as the appraisal value = mortage loan = appraisal value* 80% =23678571*80% =$18942856 mortage interest = 6% thus mortagage payment = 6%* 18942856 = $1136571
Thus equity capitalisation rate is = pre tax cash flows / initial investment = 1349678 / 22500000