Your employer, Kent, LLC, is considering an investment in an office
building that has the following cash flows:
Purchase in Year
0…………… $ -2,500,000
Year 1………………. 180,000
Year 2……………….. 276,000
Year 3……………….. 220,000
Year 4………………… 239,000
Year 5 ………………… 250,000, and a sale @ $3,190,000 takes place
EOY 5
The company’s weighted
average cost of capital that they use as their discount rate for such
calculations is 10%
1.
What is the project’s IRR?
a.
13.43%
b.
10.38%
c.
10.96%
d.
16.12%
2.
For Rubio LLC what is the NPV?
a.
$344,814
b.
$-168,158
c.
$356,234
d.
$490,401
3.
In the above problem, you might expect
a.
The Yield to be higher than the discount rate
because you sold the property at a profit.
b.
The NPV to be positive because the IRR is higher
than the discount rate
c.
The NPV to be negative because the IRR is lower
than the discount rate
d.
All of the above
4.
The Dow Jones Industrial Average is made up of
a.
10 companies
b.
The largest 1,000 companies in the world
c.
30 blue chip companies, not all of which are
heavy industrial companies
d.
100 companies with large cap market value
In the
Rubio LLC example above, assume that the company bought the office building
using 70% mortgage debt at an interest rate of 4.00% over 240 months.
5.
What
would be the monthly debt service on the office building?
a.
$11,669
b.
$9,544
c.
$6,890
d.
$10,604.66
6.
What would be the net cash flows after debt
service in year 3 ?
a.
$92,744
b.
$79,972
c.
$100,018
d.
$2,980,000
7.
What would be the balance of the loan at the end
of Year 5 ?
a.
$1,240,000
b.
$1,433,666
c.
$1,290,300
d. $1,576,776
8.
What would be the total cash flows in Year 5,
taking into consideration the cash flows, annual debt service, sale price and
the balance on the loan at the EOY 5?
a.
$1,662,985
b.
$1,937,607
c.
$1,723,196
d. $1,879,078
9.
What is the net cash flow in year 2 after paying
debt service ?
a.
$276,000
b.
$199,877
c.
$148,744
d.
No way of telling
10. What
is the net cash flow in year 4 after paying debt service?
a.
$ 577,943
b.
$ 111,744
c.
$ 591,450
d.
$ 95,766
