For Hifsa (no one else bother)

Fin 331 Homework 3

Due November 29, 2018 This assignment is 10% of your grade.

Review the offering memorandum for the Fox 5 Broadcasting Studio as a real estate investment. Your objective is to evaluate this investment opportunity to determine the offering price based on the assumptions provided in this prompt. You may complete this assignment individually or with one other classmate.

Please do not contact the listing agent.

• Use the spreadsheet provided to create your pro-forma • Enter your responses in the cells that are shaded in blue for grading. • An extra worksheet is provided if you wish to use it for intermediate calculations or

schedules. • Be sure to enter you name(s) on the spreadsheet. If you work with a partner, enter both

of your names. • Submit only one spreadsheet for grading. If you work with a partner, submit one

spreadsheet for grading. The other partner only needs to submit a note with the name of who submitted the spreadsheet to ensure getting a grade for this assignment. Your name MUST appear on the spreadsheet to receive credit for this assignment.

• Name your spreadsheet “HW3 – Name 1, Name 2”

Assumptions:

• 5 year holding period • Required IRR to Equity: 13.00% • Financing:

o 5.00% Interest Rate o 25 year amortization, monthly payments o Debt Coverage Ratio of 1.20 o 1 Point Origination Fee

• $15,000 in other acquisition costs that are paid when the property is acquired. • Income is determined based on the lease and a closing of April 1, 2019 • The Owners will have the following annual costs:

o Reserves for Replacement $6,000 per year, constant o Unreimbursed Costs of $12,000 per year, constant, for accounting, legal, and

other partnership expenses that are not passed through to the tenant. • Disposition in Year 5

o Sale Price is estimated using the Net Operating Income for year 6 and an exit cap rate of 5.75%.

o Sale commission at the end of year 5 is 4% of the sale price. o Other disposition costs are estimated at $25,000 for legal and partnership closing

costs.

Requirements for analysis:

� Enter Your Name(s) in the spreadsheet where indicated � Calculate the loan amount � Calculate the Annual Debt Service each year for the 5 year holding period � Calculate the net sale proceeds with the foregoing assumptions � Forecast the Cash Flows Before Taxes including the net sale proceeds � Calculate the present value of the cash flows before taxes � Calculate the offer price that will produce the required IRR to equity � Calculate the IRR if the investor pays the full list price � Going IN Cap Rate � Cash ON Cash for year 1 � Capital Multiplier � Calculate Loan to Value � What do you like about this investment opportunity? � What concerns you about this investment opportunity? � Identify one assumption that would improve the investment performance.