Given the Following Information, Calculate the Appropriate Going-In Cap Rate

question 20

Multiple Choice

Given the following information, calculate the appropriate going-in cap rate using mortgage-equity rate analysis. Mortgage financing = 75%, Typical debt financing cap rate: 10%, Sale price: $1,950,000, Before Tax Cash Flow (BTCF) : $390,000.

• A) 9.6%
• B) 10%
• C) 12.5%
• D) 13.6%

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Definitions:

Selling and Administrative Expense Budget

An estimation of the costs related to sales and administrative activities for a specific period, used for planning and control.

Direct Materials

Raw materials that can be directly associated with the production of specific goods or services.

Direct Labor

The wages and benefits paid for labor that is directly involved in the production of goods or the provision of services.

Variable Selling

This term likely refers to variable selling expenses, which are costs that fluctuate with sales volume, such as commissions or shipping fees.