Answered You can buy a ready-made answer or pick a professional tutor to order an original one.
Suppose a property can be bought for $2,500,000 and it will provide $200,000/year net cash flow forever, and you can borrow a perpetual interest-only mortgage secured by that property at a 7% interes
Suppose a property can be bought for $2,500,000 and it will provide $200,000/year net cash flow forever, and you can borrow a perpetual interest-only mortgage secured by that property at a 7% interest rate, up to an amount of $950,000. (a) Does this present “positive” or “negative leverage,” and (b) why? (c) Do you think that the use of leverage, in this case, will increase the NPV of the investment for the equity investor in the property? (d) Why or why not?
4. Why is it that construction loans are almost always used to finance all or most of the construction costs in development investment, even when the investor has plenty of cash that could be used to pay for construction?
- @
- 10 orders completed
- ANSWER
-
Tutor has posted answer for $50.00. See answer's preview
****** to ******** *** **** will ** * ******** ************** ** ******** ****** ** ****** **** property * **** inflow * **** of propertyRate = ******* * **************** ** return * ** interest **** ** ** so **** ** ******** *********** return **** ******** ** **** than ******** **** ** ******** **** ******** ******* **** ** positive ************** ** ******** ****** *** ** ******** ** **** case **** ******** the *** ** the investment for the equity ******** in *** *********** = Present ***** ** net **** ****** - ****** ***************** ***** of ********* ******** * ****** **** **** * interest **** or **** of **************** cash inflowflow200000Interest ** **** of ************** cash ******************** ************* value ** net **** ****************** ** ******************************* ************************************ to ******** ***** ****** *** ******** *** ** the the interest ** 7% but return **** *** ******** ** more **** interest **** ** ** ***** paying ******** ** ************ *** ********** NPVPlease **** *** answer maximum ** you *** the answer *** ********* If you ******* *** ****** ** **** ****** ****** ***** a ******* *** ** will ** ********************************* outflow *** *** ******** ** initial investment * ******* ******** * ************** cash ****** * *** ******* * **** * ************* * per year * ******* **** ************** ************************************* ******* = 8%we *** borrow a perpetual ******** only ******** ******* by **** ******** ** ** ******** rate ** ** an ****** ** ******* ** implies **** directly ** can **** ** ie ********* *** **** presents ******** ********** This ******** ******** leverage because *** ***** 1% ****** ** ***** of difference between net **** ****** **** *** **** outflow (7%) *** ** **** ***** *** ******* ** ******** ******** *** *** use ** ******** will ******** *** of the investment for *** ****** in the propertyD) *** *** of leverage **** increase *** ** *** investment *** *** equity ** *** ******** because it will ******** ****** available *** ****** ***** ******* *** ** ********* *** ********** ** ***** *** profits **** is **** the ******* of ******** ** ******** *** ******* ******* **** ******** *** ***** **** tax payment share ******* **** ******** ** *** ****** of ******** *** ********* ***** ******* ********** *** *** ** ********** ******** ** *** save *** ** ******** on ******** ** ****** ******** * 7%)2 share ******* ***** ** (capital reqired ******** * mortgage ****** $950000) * ********* ******* ****** ***** ** **** cash **** $200000 * ******** ** ******** $66500) = $133500Without the *** ** ********* no *********** ***** ******* ***** ** ********* ******* amount ***** be = *** **** **** * ******* as ***** ** no mortgage *** ** ********