An investor wants to purchase a hotel that is currently trading at $ 67 million.
The market’s current rate of return is 10%.
The investor’s required rate of return is 11%.
The asset’s (annual) NOI for the next 5 years [i.e. the current lease term) is $ 6,000,000.
At the end of the current lease (5yrs), you expect the NOI to increase to $ 6,500,000 for the foreseeable future.
You anticipate selling the property five years from today.
The building to land value ratio is 3:1 and the depreciable life of the property is 39 years.
You contacted your banker who is willing to give you an LTV of 80%.
The mortgage loan details are a 7.5% 30-year monthly amortizing loan.
The tax rates are as follows: 22% income tax, 25% depreciation recapture tax, 20% capital gains tax.
Consider straight-line depreciation.
The going-in Cap rate is 7%.
5 years later, 50 basic points(bps) additional risk premium should be applied to estimate the going-out cap rate.
The cost of sales is 3%.
Calculate your IRR based on Net cash flow before taxes(BTCF)?
d) 25.72%. Get Finance homework help today