Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. suppose you are considering the acquisition of a h

Suppose you are considering the acquisition of a hotel. The building is currently leased for...

50.1K

Verified Solution

Question

Finance

Suppose you are considering the acquisition of a hotel. The building is currently leased for the next 5 years with annual (year-end) rents of $3,000,000. At the end of the current lease, you expect rents to increase to $3,500,000 (annually) for the foreseeable future. You anticipate selling the property five years from today, and the expected cap rate at that time is 8%. The transaction costs are 5% of the sales price. Market discount rate is currently 10%, but given the uncertainty surrounding future rental rates a 3% risk premium must be added to the discount rate. Your WACC is 10% and the current cap rate is 7.75%. The building to land ratio is 3:1 and the expected life of the property is 39 years. You contacted your banker and got the following underwriting standards: LTV of 80% and DSCR of 1.2. The mortgage loan details are: 7.5% 30 year monthly amortizing loan. The tax rates are as follows: 22% income tax, 25% depreciation recapture tax, 20% capital gains tax.

[1. What is the market value of this property today?]

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students