BUSN120 WK8 Discussion
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W8: Real Estate Investing
Discuss
the advantages and disadvantages of Real Estate investing.
Real estate investment has always been seen as one of the most dependable methods for creating enduring wealth. Lucrative real estate investments provide consistent cash flow, the possibility of
value increase, and diverse tax advantages. Nevertheless, similar to every financial venture, real estate entails a distinct array of advantages and disadvantages that prospective investors have to carefully evaluate. An attractive feature of investing in real estate is the possibility of a consistent
flow of rental revenue. Regardless of whether you choose to invest in residential or commercial properties, rental income may provide a steady stream of revenue that can be used to pay bills or spend on more properties. Real estate investors have the opportunity to benefit from a range of tax benefits and deductions. Mortgage interest, property taxes, and other maintenance charges are often eligible for tax deductions, resulting in a decrease in your total tax obligation.
Real estate is illiquid, and the process of selling a property may be time-consuming. The absence
of sufficient liquidity might be a drawback when compared to more liquid investment options such as stocks or bonds. Although real estate often exhibits lower volatility compared to the stock market, it is nonetheless subject to the impact of market swings. During periods of economic decline, there is a likelihood of property devaluation and a rise in vacant properties, both of which may have a negative effect on your rental revenue and total investment returns. Engaging in real estate investment may be advantageous when approached with careful consideration and smart planning. It provides the opportunity for consistent earnings, growth in value, and advantages in terms of taxes. Nevertheless, there are some obstacles that come with it,
such as substantial upfront expenses, the burden of property management, and the uncertainties of the market.
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Related Questions
What is the formula for calculating Net Present Value (NPV)?
a) NPV = Total Revenue - Total Costs
b) NPV = Total Costs - Total Benefits
c) NPV = Initial Investment - Total Revenue
d) NPV = Total Benefits - Initial Investment
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Question 6
Suppose you are interested in buying a one-year 1,000 dirham bond. You have two options available in the bond market:
Option 1 - Emirates Airline bond that pays a coupon rate of 4.75% per year paid annually.
Option 2 - Emaar bond that pays a coupon rate of 6.0% per year paid annually.
If you decide to buy the Emirates Airline bond, which of the prices below will give you a return approximately equal to the Emaar bond?
O a. 956.9 dirhams
Ob.973.2 dirhams
O. 995.2 dirhams
Od. 988.2 dirhams
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31. An analyst is considering the purchase of a Government of Canada bond that will pay its face value of $10 000 in one year's time, but pay no direct interest. The market interest rate is 4% and the bond is being offered for sale at a price of $9400. The analyst should recommend
purchasing the bond because the purchase price is more than its present value and is therefore profitable.
not purchasing the bond because the buyer could earn an additional $376 by investing the $9400 elsewhere.
not purchasing the bond because the purchase price is less than its present value.
purchasing the bond because the purchase price is less than its present value and is therefore profitable.
not purchasing the bond because the buyer could earn an additional $224 by investing the $9400 elsewhere.
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Now suppose you invest in both a factory and the research for the production of Green jetpacks. Look at the factory and research as a total investment. Calculate the net present value (NPV) before tax on the investment based on the following information:
The investment cost is paid in full in quarter 0, and the cost of the factory is 100000 while the cost of the research is also 100000.
The factory has a lifetime of 20 quarters (5 years) and the value of the factory at the end of quarter 20 is 0
Only green jetpacks should be produced at the factory throughout its lifetime.
There is no investment in research to streamline production or material consumption.
Suppose the quarterly demand in the market is constant and given at P = 338 - 0.018 * Q, where P is price and Q is the number of jetpacks in demand.
There are 5 competitors in the market (including you), and all sell the same number of jetpacks each quarter at the price of 248 each.
You produce as much as you sell.
The costs…
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You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years.You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years.
Note:-
Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
Answer completely.
You will get up vote for sure.
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The market interest rate is 9 percent and is expected to stay at that level. Consumers can borrow and lend all they want at this rate. Consider each of the following situations.
1) Would you prefer a $500 gift today or a $540 gift next year?
2) Would you prefer a $100 gift now or a $500 loan without interest for four years?
3) Would you prefer a $350 rebate on an $8000 car or one year of financing for the full price of the car at 0 percent interest?
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How does IRR (internal rate of return rule) differentiate from NPV (net present value rule) when deciding profitable investments? Is there a specific rule preferred or do they tend to give the same answer? Thank you so much im trying to understand them better.
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Consider two projects: Project A currently costs $15 million, which is to be paid this year. The returns are $10 million in one year and $8 million in two
years. Project 8 currently costs $13 million, again to be paid this year. The returns are $9 million in one year and $8 million in two years.
At an interest rate of 6%, the net present value of Project A is roughly
while the net present value of Project B is roughly
Suppose investing in one project eliminates the opportunity to invest in the other. If the interest rate is 6%, Project
is preferable.
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4. A company introduced a new product to the market in the first month of the year which was supported by the corresponding advertising campaign and showed steady growth in the following months. The initial price was set at a level of 30% above average cost (MK). The company's goal is to cover its overheads and achieve maximization in profits and that's why I'm wondering if the price of €7,5 is optimal. With the continuous growth of sales, the company conducted market research and found that the elasticity of demand towards the price is -3. The formula for calculating the demand elasticity to the price is given: ε T = [-MK/(T-MK)] - 1
Sales (tons) and cost (mm. (EUR) For the next 3 months they are estimated as follows:
JANUARY
FEBRUARY
MARCH
Sales (volume)
2.250
2.500
2.750
Raw materials
€1.400
€1.550
€1.700
Work
€3.350
€4.050
€4.950
Other industrial costs
€3.000
€3.075
€3.150
Administrative expenses
€2.150
€2.150…
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When interest rates rise, what needs to happen in order for the present value of an asset to
remain the same, using a rate of return approach?
a) The amount of the income stream needs to fall and/or cost of capital needs to rise.
b) The amount of the income stream needs to fall and/or cost of capital needs to fall.
c) The amount of the income stream needs to rise and/or cost of capital needs to fall.
d) The amount of the income stream needs to rise and/or cost of capital needs to rise.
Save
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Imagine that you are a financial manager for a medium-sized company.
Describe how you would use capital budgeting techniques to determine whether a business investment is a good idea.
Give an example of a business investment venture and how you would use capital budgeting to ensure it is a good investment.
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Suppose you invested $94 in the Ishares High Yield Fund (HYG) a month ago. It paid a dividend of $0.50 today and then you sold it for $95. What was your dividend yield and capital gains yield on the investment?
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Pls help with below homework.
You took an amazing class at the U that changed your life, so now you are going to invest for your retirement. Your tax bracket is 25% federal and 5% state. Your investment is in a federally and state tax free account that earns 11% each year, what interest rate are you effectively earning on your investment?
3. How much will you have effectively earned if you invest $4,000 each year for the next 35 years (please use the rate you got in question 2)?
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Fill in each statement with the appropriate capital investment analysis method: Payback, ARR, NPV, or IRR. Some statements may have more than one answer.
a.
نه ن ن ن نه
b.
C.
d.
e.
is (are) more appropriate for long-term investments.
highlights risky investments.
shows the effect of the investment on the company's accrual-based income.
is the interest rate that makes the NPV of an investment equal to zero.
requires management to identify the discount rate when used.
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Michelle has received two exciting job offers from two different companies, Tech Corp and Future Inc. Tech Corp offers a Defined Benefit Pension Plan (DBPP), while Future Inc offers a Defined Contribution Pension Plan (DCPP). As an aspiring investment enthusiast, Michelle would like to have a say in how her retirement funds are invested.
1) Which company should Michelle choose if she wants to have the freedom to make her own investment decisions?
2) If Michelle prefers a guaranteed income after retirement, which plan would suit her best?
3) Which plan potentially exposes Michelle to higher investment risk?
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Please do your own work, don't copy from the internet
Q2)
2, You invest $3,000 for three years at 12 percent.
a. What is the value of your investment after one year? Multiply $3,000 × 1.12.
b. What is the value of your investment after two years? Multiply your answer to part a by 1.12.
c. What is the value of your investment after three years? Multiply your answer to part b by 1.12. This gives your final answer.
Combine these three steps by using the formula to find the future value of $3,000 in 3 years at 12 percent interest.
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Q3. A) If the supply price of machine is Rs. 3000 and Marginal productivity of capital is 10% , the
estimated return from the capital asset are Rs. 1100 and Rs. 2420 respectively in the first and second
year. Prove that prospective income and supply price of an asset are equal.
B) What is Marginal Efficiency of Capital? What are the determinants of Marginal Efficiency of
capital?
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Hua Xing runs a lawn care service. Buying an additional riding lawn mower will cost $3,000
but would allow her firm to earn $1,000 of additional revenue each year for the next four
years. She expects marginal efficiency of capital to be at least 10%. Which statement is an
accurate description of this investment opportunity?
a)
Hua Xing should make the investment because turning $3,000 into $4,000 provides a
rate of return of 33%.
b) Hua Xing should not make the investment because it has a negative net present value.
c)
Hua Xing should not make the investment because it provides only a 5.16% return on
investment.
Od) Hua Xing should make the investment because the internal rate of return exceeds
10%.
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8, Q4) Hey, need help with the following multi-part macroeconomics problem. Thank you in advance!
In this problem, consider a simple mutual fund. Households and businesses invest in the fund by buying shares; the fund uses this money, in turn, to invest in a range of assets, including equities and bonds. If an investor wishes to divest from the fund, she can “redeem” her shares. Redeeming involves selling the shares back to the mutual fund for a price called the “net asset value” (NAV). The NAV is equal to the difference between assets and liabilities, divided by the total number of investors in the fund (similar to the shareholders’ equity discussed in this chapter). The NAV is updated at the end of each day. Thus every investor who redeems on a given day will get the same price.
What does this fund’s balance sheet look like?
Suppose several large investors in the mutual fund start getting nervous about market conditions and decide to redeem, all on the same day. How will these…
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12. Vanessa is working for a marketing firm making $60,000 per year but considers starting her own marketing
company. Vanessa has determined that to launch the business, she needs to invest $100,000 of her own funds.
She currently makes 6% return on her money while it is in the bank, so if she invests in this business, she will be
giving up $6000 ($100,000x.06) in interest each year. The annual cost of running the business will include
$70,000 for the rent of the office space, $210,000 for employee wages, and $5,000 for materials and utilities.
Vanessa plans to manage the business, which means that she will have to quit her current job.
a. Which costs above are considered explicit costs? Which costs are considered implicit costs?
b. What is Vanessa's explicit cost per year?
C. What is Vanessa's implicit cost per year?
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Example 2
A new pharmaceutical plant will be built with an initial investment of $1.2 billion which will be an
upfront payment. The construction of the plant will take one year after which there will be an expected
yearly cashflow of $65 million for 20 years. The discount rate (the rate of return which could be
expected if the money were invested elsewhere) is 5.9%. If you are the manager in charge of this
project, will you move forward?
Show all work.
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Susie Lee won a lottery. She will have a choice of receiving $25,000 at the end of each year for the next 30 years, or a lump sum today. If she can earn an annual return of 10 percent on any investment she makes, what is the least she should be willing to accept today as a lump-sum payment? (Round to the nearest hundred dollars.)
Use the NPV as you have equal cash flows of $25,000 for the next 30 years.
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SEE MORE QUESTIONS
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Related Questions
- What is the formula for calculating Net Present Value (NPV)? a) NPV = Total Revenue - Total Costs b) NPV = Total Costs - Total Benefits c) NPV = Initial Investment - Total Revenue d) NPV = Total Benefits - Initial Investmentarrow_forwardQuestion 6 Suppose you are interested in buying a one-year 1,000 dirham bond. You have two options available in the bond market: Option 1 - Emirates Airline bond that pays a coupon rate of 4.75% per year paid annually. Option 2 - Emaar bond that pays a coupon rate of 6.0% per year paid annually. If you decide to buy the Emirates Airline bond, which of the prices below will give you a return approximately equal to the Emaar bond? O a. 956.9 dirhams Ob.973.2 dirhams O. 995.2 dirhams Od. 988.2 dirhamsarrow_forward31. An analyst is considering the purchase of a Government of Canada bond that will pay its face value of $10 000 in one year's time, but pay no direct interest. The market interest rate is 4% and the bond is being offered for sale at a price of $9400. The analyst should recommend purchasing the bond because the purchase price is more than its present value and is therefore profitable. not purchasing the bond because the buyer could earn an additional $376 by investing the $9400 elsewhere. not purchasing the bond because the purchase price is less than its present value. purchasing the bond because the purchase price is less than its present value and is therefore profitable. not purchasing the bond because the buyer could earn an additional $224 by investing the $9400 elsewhere.arrow_forward
- Now suppose you invest in both a factory and the research for the production of Green jetpacks. Look at the factory and research as a total investment. Calculate the net present value (NPV) before tax on the investment based on the following information: The investment cost is paid in full in quarter 0, and the cost of the factory is 100000 while the cost of the research is also 100000. The factory has a lifetime of 20 quarters (5 years) and the value of the factory at the end of quarter 20 is 0 Only green jetpacks should be produced at the factory throughout its lifetime. There is no investment in research to streamline production or material consumption. Suppose the quarterly demand in the market is constant and given at P = 338 - 0.018 * Q, where P is price and Q is the number of jetpacks in demand. There are 5 competitors in the market (including you), and all sell the same number of jetpacks each quarter at the price of 248 each. You produce as much as you sell. The costs…arrow_forwardYou are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years.You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardThe market interest rate is 9 percent and is expected to stay at that level. Consumers can borrow and lend all they want at this rate. Consider each of the following situations. 1) Would you prefer a $500 gift today or a $540 gift next year? 2) Would you prefer a $100 gift now or a $500 loan without interest for four years? 3) Would you prefer a $350 rebate on an $8000 car or one year of financing for the full price of the car at 0 percent interest?arrow_forward
- How does IRR (internal rate of return rule) differentiate from NPV (net present value rule) when deciding profitable investments? Is there a specific rule preferred or do they tend to give the same answer? Thank you so much im trying to understand them better.arrow_forwardConsider two projects: Project A currently costs $15 million, which is to be paid this year. The returns are $10 million in one year and $8 million in two years. Project 8 currently costs $13 million, again to be paid this year. The returns are $9 million in one year and $8 million in two years. At an interest rate of 6%, the net present value of Project A is roughly while the net present value of Project B is roughly Suppose investing in one project eliminates the opportunity to invest in the other. If the interest rate is 6%, Project is preferable.arrow_forward4. A company introduced a new product to the market in the first month of the year which was supported by the corresponding advertising campaign and showed steady growth in the following months. The initial price was set at a level of 30% above average cost (MK). The company's goal is to cover its overheads and achieve maximization in profits and that's why I'm wondering if the price of €7,5 is optimal. With the continuous growth of sales, the company conducted market research and found that the elasticity of demand towards the price is -3. The formula for calculating the demand elasticity to the price is given: ε T = [-MK/(T-MK)] - 1 Sales (tons) and cost (mm. (EUR) For the next 3 months they are estimated as follows: JANUARY FEBRUARY MARCH Sales (volume) 2.250 2.500 2.750 Raw materials €1.400 €1.550 €1.700 Work €3.350 €4.050 €4.950 Other industrial costs €3.000 €3.075 €3.150 Administrative expenses €2.150 €2.150…arrow_forward
- When interest rates rise, what needs to happen in order for the present value of an asset to remain the same, using a rate of return approach? a) The amount of the income stream needs to fall and/or cost of capital needs to rise. b) The amount of the income stream needs to fall and/or cost of capital needs to fall. c) The amount of the income stream needs to rise and/or cost of capital needs to fall. d) The amount of the income stream needs to rise and/or cost of capital needs to rise. Savearrow_forwardImagine that you are a financial manager for a medium-sized company. Describe how you would use capital budgeting techniques to determine whether a business investment is a good idea. Give an example of a business investment venture and how you would use capital budgeting to ensure it is a good investment.arrow_forwardSuppose you invested $94 in the Ishares High Yield Fund (HYG) a month ago. It paid a dividend of $0.50 today and then you sold it for $95. What was your dividend yield and capital gains yield on the investment?arrow_forward
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Recommended textbooks for you
- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning