(SOLVED) Johnson is considering the purchase of Happy Valley Acres, a 300-unit apartment complex.

Discipline: Finance

Type of Paper: Question-Answer

Academic Level: Undergrad. (yrs 1-2)

Paper Format: APA

Pages: 1 Words: 47

Question

Johnson is considering the purchase of Happy Valley Acres, a 300-unit apartment complex. She has hired Carson to advise her on the investment. Carson has estimated the following data for Happy Valley Acres for the next accounting period:


Potential rental income = $3.80 million


Vacancy rate = 3.5%


Insurance costs = $250,000


Financing costs = $940,000


Property taxes = $400,000


Utility expense = $120,000


Repair costs = $200,000


Depreciation = $350,000


Required return = 8%


Calculate the net operating income (NOI) and property value.


Expert Solution Preview


NOI = rental income * (1-vacancy rate) - insurance cost  -  property taxes - utility expenses - repair costs


NOI = 3800000*(1-3.5%) - 250000 - 400000 - 120000 - 200000


NOI =