+61480015851
FNCE90075: Managerial Finance - Annual Percentage Rates - Accounting and Finance Assessment Answer
Download Solution
Order New Solution
Internal Code: 1AHHHG
Code: FNCE90075
Managerial Finance - Accounting and Finance Assessment Answer
Assignment Task: FNCE90075 You should answer any questions about rates as Annual Percentage Rates (APR). Answers without (mathematical) justification will not receive credit. In many places, houses are sold not as perpetual ownership but as long-dated leases. In much of London and Singapore, for example, it is common for apartments to be sold as 99-year leaseholds, meaning the initial buyer of an apartment in actuality signs a 99-year lease with a single, upfront lease payment. After those 99 years, the lease expires, and in theory the property goes back to the original owner. 99 years is a long time, and many recently sold homes would be less than 20 years into that term. Given the relative novelty of these leases, it is unclear what exactly will happen at the end of the leasehold. If the ultimate owner of the property is the government, one may speculate that the government will allow for some less extreme outcome than mass evictions when the leases expire. FNCE90075 In this assignment, we’ll consider leasehold properties and compare them to freehold properties, which grant buyers perpetual ownership. A Canberra home with 80 years remaining on a 99-year lease from the government is selling for $1 million. The current net monthly rent for this apartment is $2,800. For simplicity, you may assume all rental payments are made at the end of the month.- Based on the information above, list two risks with purchasing this house as an investment. Your answers may be specific to this particular house or generalized to residential housing. FNCE90075
- If you expect rents to grow at 2% APR monthly (i.e., with monthly compounding) in perpetuity, what is the internal rate of return (IRR) if you purchase the apartment in cash (i.e., without financing)? The IRR is the discount rate at which the NPV of the investment is 0.
- Instead of paying in cash, you finance the purchase by borrowing 80% of the sale price (and paying the remaining 20% as a down payment). The loan will last 30 years, with monthly repayments and an interest rate of 4.5% APR monthly. If the first loan repayment is due in one month, what is the IRR for purchasing the apartment with financing? FNCE90075
- A freehold home in Melbourne with the same monthly rent and same expected growth rate of rent is currently selling for $1.45 million. Assuming you pay in cash, which house – the Canberra leasehold or the Melbourne freehold – offers a higher expected IRR? Briefly explain your answer
- Using 2% APR monthly as the growth rate of rents and the IRR from (1) as the discount rate for rents, is buying the apartment in cash for $1.3 million a positive NPV investment? Clearly state any assumptions you make in calculating your answer. FNCE90075
This FNCE90075: Accounting and Finance Assessment has been solved by our Accounting and Finance Assessment experts at My Uni Paper. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+ Students in Australia, UK & US by helping them to score HD in their academics. Our Experts are well trained to follow all marking rubrics & referencing style.