Question

a. What is the Present Value using a discount rate of 8% given the following cash flows?

            Year 1:            40,000

            Year 2:            42,000

            Year 3:            44,000

            Year 4:            45,000

            Year 5:            37,000

            And, a sale occurs at the end of year 5 at a price of $425,000.

            A) $517,238

            B) $455,480

            C) can’t determine from the facts given

            D) $122,344

b. Same facts as part a. Would you pay the asking price of $502,000 ?

            A) Yes, because the NPV is positive

            B) No, because the NPV is negative

            C)

            D)

c. Same facts as part a.   If you pay $395,000 for the deal, what is the Internal Rate of Return?

            A) 5.44%

            B) 7.92%

            C) 11.74%

            D) 6.67%

d. If you financed the deal in part c with a loan at 4.00% at a LTV of 70% over 20 years, what is the annual debt service (calculate the monthly payment and multiply by 12)

            A) $20,106

            B) $31,234

            C) $37,446

            D) $1,675.54

Answer 1