Business

FinanceQ&A LibraryI need help with this problem and putting into an excel format with formulas. You are looking into the purchase of a condominium complex for your privately-held real estate firm REInvest Corp. The condominium complex would cost $38 million today. This condominium complex would be a typical investment for CondoPlus Inc. You think that the outcomes of this investment will depend on how the economy does in the near future. You think that there is a 40% chance that the economy will keep improving. This will result in CFs of $5 million next year, with the CFs increasing by 5% per year into perpetuity. There is a 30% chance of the economy growing very slowly, which will result in CFs of $3 million next year with 2% growth per year in perpetuity. And there is a 30% chance that the economy will shrink, causing CFs to be $1 million next year with only 1% growth per year into perpetuity. You could purchase an option to sell the condominium complex exactly 1 year from now for $25 million. How much is this option worth? The discount rate is 12%.Start your trial now! First week only $4.99!*arrow_forward*

Question

I need help with this problem and putting into an excel format with formulas.

- You are looking into the purchase of a condominium complex for your privately-held real estate firm REInvest Corp. The condominium complex would cost $38 million today. This condominium complex would be a typical investment for CondoPlus Inc.

You think that the outcomes of this investment will depend on how the economy does in the near future. You think that there is a 40% chance that the economy will keep improving. This will result in CFs of $5 million next year, with the CFs increasing by 5% per year into perpetuity. There is a 30% chance of the economy growing very slowly, which will result in CFs of $3 million next year with 2% growth per year in perpetuity. And there is a 30% chance that the economy will shrink, causing CFs to be $1 million next year with only 1% growth per year into perpetuity.

You could purchase an option to sell the condominium complex exactly 1 year from now for $25 million. How much is this option worth? The discount rate is 12%.

Tagged in

Business

Finance

Find answers to questions asked by students like you.

Q: 12. You are considering the purchase of a tract of timber land today as an investment. Last years ti...

A: Calculate the current price of the land as follows:

Q: he newspaper reported last week that Tisch Enterprises earned $34.17 million this year. The report a...

A: Hi, as per our policy we will answer the first three parts. Kindly repost the remaining parts separa...

Q: You are a management trainee in one of the Manufacturing companies based in Johor, Malaysia. The com...

A: The value of the firm is dependent upon the future cash flows and the discount rate. In the absence ...

Q: Assess the estimation techniques of long term corporate investment in your answer focus on the relat...

A: Stock valuation is one of the method used to determine the theoretical value or intrinsic value of t...

Q: Please solve #2 and #6 A corporation creates a sinking fund in order to have $860,000 to replace s...

A: Part 2 to 6:Excel Spreadsheet:

Q: The price of a home on a particular island is $1,000,000. The bank requires a 15% down payment and 3...

A: Hi! Thank you for the question. I am solving the Question for first 3 sub-parts as you have posted t...

Q: A certain investment will require an immediate cash outflow of $4m. At the end of each ofthe next 4 ...

A: PART A & B:Calculation of Net Present Value:The real interest rate of 5% in Part B is calculated...

Q: Assume ABC shares have a market capitalization of $50 million. The company is expected to pay a divi...

A: WACC refers to weighted average cost of capital. It is the rate that a firm needs to pay (on an aver...

Q: Suppose that 10 years ago you bought a home for $150,000, paying 10% as a down payment, and financin...

A: Computation of total interest:Hence, the total interest that is paid so far is $1,980.06.

Q: Year-to-date, Yum Brands had earned a 4.80 percent return. During the same time period, Raytheon ear...

A: Calculation of the portfolio return using excel is as follows:

Q: Automobiles had an average cost of $16,000 in 2013. Average cost of the same automobiles now is $20,...

A: Calculation of rate of increase for the automobiles between 2 time period: Rate of increase for the ...

Q: the effects of increasing the amount paid upfront when corporations make capital purchases with a fo...

A: Capital expenditure is an expense, that generates profits for a longer period of time which can be m...

Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is ...

A: Calculation of Expected Return, Standard Deviation, Sharpe Ratio, Weight of Stock and Weight of Bond...

Q: Finance Question

A: Future value of a stream of annuity is given by the expression shown on the white board. Symbols hav...

Q: 10 &ercent Suppose that you earned a bachelor's degree and now you' re teaching middle school. The s...

A: $1500 is deposited every three months for a period of 11 years at a rate of 5.5% compounded quarterl...

Q: A company's capital structure is 40% debt and 60% equity. The interest cost on its debt is 10% and i...

A: Weighted average cost of capital can be used to estimate the rate which should be provided to invest...

Q: Skolits Corp. issued 15-year bonds 2 years ago at a coupon rate of 7.6 percent. The bonds make semia...

A: Calculate the yield to maturity (YTM) as follows:MS - Excel --> Formulas --> Financials -->...

Q: Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial f...

A: The initial investment cost of store is $2,300,000.According to straight line depreciation, the annu...

Q: One-year Treasury bills currently earn 1.75 percent. You expect that one year from now, 1-year Treas...

A: Calculate the current rate on year 2 as follows:

Q: Need help figuring this out and setting up in Excel with formulas.

A: Payback period is the time when the cumulative cash flow turns out to be zero. Discounted payback pe...

Q: You have a loan outstanding. It requires making five annual payments of $7,000 each of the end of th...

A: In order to remain indifferent between the two options,One large payment at the end of the loan’s te...

Q: Calculate the price of a 5.6 percent coupon bond with 10 years left to maturity and a market interes...

A: Face Value of Bond = $1,000Coupon Rate = 5.6%Type of coupon payment = SemiannualNumber of Coupon pay...

Q: The equity versus debt decision relies on a large number of factors such as the existing capital str...

A: As a rule, the superlative capital structure for a business is a capital structure which decreases t...

Q: WHICH OF THE FOLLOWING STATEMENTS IS MOST CORRECT? A. IF A FIRM'S EXPECTED BASIC EARNING POWER (BEP...

A: Basic Earning Power (BEP) RatioIt represents that the how much a firm’s assets able to generate oper...

Q: B. decreased; decreased. C. increased; decreased D. decreased; increased E. decreased; stayed the sa...

A: ) At the time when the loan was taken, exchange rate was 1.2 Swiss Franc per dollar.Therefore, a loa...

Q: 1. Today, a new release movie ticket costs $8.00. If the average annual inflation rate is 2.5%, who ...

A: Calculation of future value:Answer:Future value of ticket cost is $21.48Definition:Future value is t...

Q: Imprudential, Inc., has an unfunded pension liability of $582 million that must be paid in 20 years....

A: To find out the value of the pension liability, the amount will be simply discounted to its present ...

Q: Most corporate bonds in the U.S. have which of the following features?I. Registered formII. Bearer f...

A: The corporate bonds in U.S. are largest component of the U.S. bond market. Corporate bonds are issue...

Q: Financial analysts forecast Limited Brands (LTD) growth rate for the future to be 12.5 percent. LTD’...

A: Gordon growth model states that the price or value of a stock can be determined if the firm continue...

Q: a firm has a debt-to-equity ratio of 1.0. if we assume that the firm's debt pays 11% interest annual...

A: Hence, cost of debt after tax is 6.6%.The cost of debt is determined by multiplying cost of debt bef...

Q: Calculate the value of x for the cash flows below such that the equivalent total value in year 8 is ...

A: Equivalent value of a cash flow, Ct occurring at time t, at the end of year n = Ct x (1 + r)n - t wh...

Q: A Forwand contracts have no defalt risk B Futures contracts roquire an initial margin requirement be...

A: In short position, for future contract if the price of the contract raises, the seller become obliga...

Q: Why capital structure is so crucial for the chief of any corporate department? Last but not lease, e...

A: Capital structure refers to the percentage or weight of debt and equity in the total capital of a fi...

Q: MMS Corp borrows $1,650,000 today for a new building. The loan is an equal principal payment loan wi...

A: Calculation of Interest Payment due in Month 16:The interest payment due in month 16 is $7,985.21.Ex...

Q: Smooth Sailing Warehouse wants to issue 15-year, zero coupon bonds that yield 7.50% with semi-annual...

A: Calculate the bond price as follows:

Q: Calculate the future worth (in year 11) of the following income and expenses, if the interest rate i...

A: Computation of net amount:

Q: find the interst periodic deposit 4000 rate .055 time 40 years

A: Assumption:It is assumed that the periodic deposit of $4,000 is compounded annually at the rate of 5...

Q: Thank you for answering question 3. I need the answers to 4 and 5 as well because the cash flows are...

A: 4.Computation of NPV:

Q: 9. A passbook savings account has a rate of 6%. Find the effective annual yie if the interest is com...

A: I am solving the first question, that is Q - 9.

Q: A share of common stock has just paid a dividend of $3.00. If the expected long-run growth rate for...

A: The market value of the stock is the current stock price in the market at which the trading of the e...

Q: The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be...

A: Computation of the yield:Hence, the yield is 8.58%.

Q: Skyscraper Inc. has 12-year bonds outstanding with a face value of $1,000 and a market price of $974...

A: Calculation of coupon rate:Coupon rate is 3.75%.Excel spread sheet:

Q: A stock has yielded returns of 6 percent, 11 percent, 14 percent, and -2 percent over the past four ...

A: The formula to calculate mean value is given below:

Q: Washing machine cost $600. You can buy on credit for 12 monthly payments of $52.74 each total cost ...

A: Answer:No, it was not considered as a best trade-off because, if you wait for one year the price of ...

Q: I'm struggling on this problem and have to put it into excel with formulas.

A: Computation of the stock price:

Q: Borrowed $500 for 1 year and paid $50.00 in interest. Bank charged $5.00 service charge. What id fin...

A: Finance charge:The finance charge is the overall sum of the amount of interest and loan charges that...

Q: Chrome Co. borrows $1,665,000 at an interest rate of 7.32% APR monthly with equal monthly payments o...

A: PV of loan = $ 1,665,000; Annuity payment, A = 15,265;Period = 1 monthinterest rate per period, r = ...

Q: What is the annual opportunity cost of a checking account that requires a $300 minimum balance to av...

A: Opportunity cost is the potential loss of income on the amount invested in the checking account as m...

Q: Hello, It is a three part question. However, I would like to know how the amount of 122, 265, was ca...

A: 3.Calculate the net present value as follows:

Q: A 4.40 percent coupon municipal bond has 16 years left to maturity and has a price quote of 105.50. ...

A: “Hi, as per our policy we will answer the first three parts of the question. Kindly repost the remai...