easy time value money hw for real estate

RE 3010.010 Homework 1 Time Value of Money Exercise

Objective: To learn TVM calculations using a financial calculator and Excel

Due date: Tuesday, October 13, 2015 by 9:30 a.m.

Submit: Submit on Desire2Learn - Upload completed files into Dropbox folder

Solve the following questions using a financial calculator. Submit your answers in Excel. Show calculator inputs (i.e. N, PV, etc.) to get partial credit.

1. How much would you pay for the right to receive $14,000 at the end of 12 years if you can earn a 13% return on a real estate investment with similar risk?

2. What constant amount invested at the end of each year at an 8% annual interest rate will be worth $15,000 at the end of six years?

3. Your father will convey a property to you in 10 years. If the property is expected to be worth $400,000 when you receive it, what is the present value of the property? Your discount rate is 15%.

4. What is the NPV of $600 received for the next four years and $1,500 received at the end of the fifth year if your required return is 10%?

5. Assuming no income or holding costs during the period, if you purchased a vacant parcel of land five years ago for $1,150,000, how much would you have to sell it for to yield a 9% annual return on your investment?

Solve the following questions using TVM formulas in Excel. Show your work to receive full credit.

6. You own a building that a local business wants to rent for the next 10 years. The business owner has offered to pay $40,000 today or pay $6,400 at the end of each of next 10 years. If your required rate of return is 10%, which payment schedule should you accept?

7. How much would you pay to participate in a real estate project that pays nothing for the first 10 years and $2,000 for the following 10 years if you can earn 14% return on other investments of similar risk?

8. Calculate the IRR and NPV for the following cash flows. Assume a 15% discount rate

Year Project 1 Cash flow

Project 2 Cash flow

0 -$20,000 -$20,000 1 2,000 14,000 2 5,000 12,500 3 7,000 4,000 4 12,000 4,000 5 17,500 2,000

9. If your tenant pays you rent of $14,000 a year for 10 years, what is the present value of the series of payments discounted at 12% annually? Assume rent is paid at the end of each year.

10. You are going to invest $250,000 in a real estate investment project that generates the following cash flows.

Year 1 2 3 4 5 Cash flow 85,000 85,000 85,000 85,000 85,000

Assuming a 13.5% discount rate, what is the NPV of this project? What is the IRR?