Given the Following Information Regarding an Income Producing Property, Determine

question 4

Multiple Choice

Given the following information regarding an income producing property, determine the NPV using levered cash flows in your analysis. Required equity investment: $270,000; Expected NOI for each of the next five years: $150,000; Debt Service for each of the next five years: $125,000; Expected Holding Period: 5 years; Required yield on levered cash flows: 15%; Expected Sale Price at end of Year 5: $2,000,000; Expected Cost of Sale: $125,000; Expected Mortgage Balance at time of sale: $1,500,000

• A) $245.15
• B) $270,245.15
• C) $419,264.54
• D) $1,435,029.64

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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, especially as affecting liquidity.

Derivative Security

A financial instrument whose value is based on the performance of an underlying asset, such as stocks, bonds, commodities, or currencies.

Financial Asset

Any asset that is cash, the right to receive cash or another financial asset, or an equity instrument of another entity, such as stocks, bonds, or derivatives.

Underlying Asset

An asset upon which a derivative’s price is based, such as stocks, bonds, commodities, or currencies.