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aleksandrvk [35]
1 year ago
14

what is the present value of the following cash flow stream at a rate of 10.0%? years: 0 1 2 3 cfs: $750 $2,450 $3,175 $4,400

Business
1 answer:
lana [24]1 year ago
3 0

The present value of the given cash flow stream at a rate of 10.0% for all the years that is from year zero to year three is $10,777.50. Hence, Option B is correct.

<h3>What is a cash flow stream?</h3>

For describing any business proposal, there are very specific requirements, but the two things that are majorly required are cash flow instances and cash flow stream.

A cash flow stream is basically a kind of specific amount that sometimes flows into or sometimes flows out of an organization. It is basically for a particular time period, which can be calculated with the help of some proposal.

Therefore, the given data after doing these required calculations when the cash flow is calculated at a rate of 10.0%, the amount is $10,777.50. Option B is correct.

Learn more about cash flow stream from here:

brainly.com/question/15565882

#SPJ4

The complete question is attached in text form:

What is the present value of the following cash flow stream at a rate of 10.0%?

Years: CFs:

0 $750

1 $2,450

2 $3,175

3 $4,400

a. $8,283.53

b. $10,777.50

c. $10,866.57

d. $7,749.11

e. $8,907.02

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Answer:

<u>Requirement A:</u> CAP Rate is 12.5%

<u>Requirement B:</u> Capitalized Value of the Property is $1,884,960

<u>Requirement C:</u> Loan Amount is $1,413,720

<u>Requirement D:</u> Debt Service Coverage Ratio is 1.85

<u>Requirement E:</u> Loan per unit is $176,715 Per Unit

Explanation:

<u>Requirement A:</u> Find the CAP Rate

The CAP Rate will be calculated using the following formula:

CAP Rate = Annual Net Operating Income (NOI) <u>(Step1)</u> / Property Capitalized Value <u>(Step2)</u>

Here

Operating Income is $235,620 (Step1)

Property Capitalized Value (Step2)

Now, by putting values we have:

CAP Rate = $235,620 / $1,884,960 = 12.5%

<u>Step1:</u> Find Annual Net Operating Income (NOI)

As we know that:

Operating Income = Expected Revenue - Operating Expense

Here

Expected Revenue from 8 Strip Malls = Rent / Month * 12 Months * (1 - Vacancy Ratio) * 8 Strips Malls

= $3,500 * 12 * (1 - 15%) * 8

= $285,600

Operating Expenses = Expected Revenue * 17.5%

= $285,600 * 17.5% = $49,980

Now by putting value in the above Operating Income equation, we have:

Annual Operating Income = $285,600 - $49,980 = $235,620

<u>Step2:</u> Find Property Capitalized Value (It is also <u>Requirement B</u>)

Property Capitalized Value = Annual Operating Income / Minimum Accepted Rate of Return (MARR)

Here

Annual Operating Income is $235,620 from Step1

MARR is 12.5%

By putting values, we have:

Capitalized Value of the Property = $235,620 / 12.5% = $1,884,960

<u></u>

<u>Requirement C. Find Loan Amount</u>

It is given in the question that the Loan Amount is 75% of Property Capitalized Cost. This implies:

Loan Amount = $1,884,960 * 75% = $1,413,720

<u>Requirement D. Debt Service Coverage Ratio</u>

Debt Service Coverage Ratio (DSCR) = Annual Net Operating Income / Total Debt Service for the Year

Here

Annual Net Operating Income is $235,620 from Step1

Total Debt Service for the Year $127,235 (See <u>Step3</u> below)

By putting values, we have:

Debt Service Coverage Ratio = $235,620 / $127,235 = 1.85

<u>Step3: Total Debt Service for the year</u>

Total Debt Service for the year = Loan Amount * Debt Service Rate

Here

Loan Amount is $1,413,720

Debt Service Rate is 9%

By putting values, we have:

Total Debt Service for the year = $1,413,720 * 9% = $127,235

<u>Requirement E. Find Loan Amount</u>

We can find loan per unit by simply dividing the loan amount by number of strip mall. Here total number of strip mall are 8. This implies that:

Loan Per Unit = $1,413,720 / 8 Units = $176,715 Per Unit

3 0
3 years ago
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