Why might an investor be skeptical about the loan-to-value ratio for a commercial mortgage loan?
What will be an ideal response?
The NOI of a commercial property is determined by taking the rental income and reducing it by cash operating expenses (adjusted for a replacement reserve). In valuing commercial property, the expected cash flows are the future NOIs. A discount rate or "capitalization rate," reflecting the risks associated with the cash flows, is used to compute the present value of the future NOIs.
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In the formula for the minimum transfer price, opportunity cost is the __________ of the goods sold externally.
a) selling price b) variable cost c) total cost d) contribution margin
J.B. Enterprises purchased a new molding machine for $85,000. The company paid $8,000 for
shipping and another $7,000 to get the machine integrated with the company's existing assets. J.B. must maintain a supply of special lubricating oil just in case the machine breaks down. The company purchased a supply of oil for $4,000. The machine is to be depreciated on a straight-line basis over its expected useful life of 8 years. Which of the following statements concerning the change in working capital is MOST accurate? A) The $4,000 may be expensed each year over the life of the project as part of the incremental free cash flows. B) The $4,000 is added to the initial outlay and recaptured during the terminal year, hence having no impact on the projects NPV or IRR. C) Even if the $4,000 is fully recovered at the end of the project, the project's NPV and IRR will be lower if the change in working capital is included in the analysis. D) The $4,000 paid for oil is added to the initial outlay, offset by the tax savings $1600.