You are a commercial real.estte broker, eager to sell an office building. An investor is interested...

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You are a commercial real.estte broker, eager to sellan office building. An investor is interested but demand 20% returnof her equitt investment. The building's selling price is 25Million Pesos, and it promises free cash flows of 3 Million pesosannually in perpetuity. Interest only financing is available at 8percent interest; that is; the debt is ourstanding forever amdrequires no principal payments. The tax rate is 50 percent.
a. Propose an investment finnacing package that meets the investorsreturn target.
b. Propose an investment financing package that meets the investorstarget when.she demands a 90 percent returns on equity.
c. Why would an investor settle for 20 percent rwturn on thisinvestment when she can get as high as 90 percent.

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Assumed Debt x equity y return on equity 020y cost of debt 0081tx 008105x 004X free cash flow 3 Total investment 25 or XY 25 y 25X First equation Return Cost of debtdesired return of equity 3 004X020Y 020Y 3004X Second equation Replacing value of first equation in second equation 02025X 3004X 5020X 3004X 53 020X004X 2 016X X 2016 X See Answer

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You are a commercial real.estte broker, eager to sellan office building. An investor is interested but demand 20% returnof her equitt investment. The building's selling price is 25Million Pesos, and it promises free cash flows of 3 Million pesosannually in perpetuity. Interest only financing is available at 8percent interest; that is; the debt is ourstanding forever amdrequires no principal payments. The tax rate is 50 percent.a. Propose an investment finnacing package that meets the investorsreturn target.b. Propose an investment financing package that meets the investorstarget when.she demands a 90 percent returns on equity.c. Why would an investor settle for 20 percent rwturn on thisinvestment when she can get as high as 90 percent.