FIN 351 Assignment 3 Q1) Core Inc

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FIN 351 Assignment 3

Q1) Core Inc. borrowed a loan of $4,500,000 at 10% for 25 years term with 3% prepayment penalty five years ago. Recently, a new loan is available at contract rate of 8.5% for 20 years with 4% origination fees. Should Core Inc. refinance now if the discount rate is 6.5%? (2 points)

Q2. Given the following information, calculate the equity investment required to purchase the specific property. Purchase Price: $500,000, Loan Amount: 80% of purchase price, Up-front financing costs: 2.5% of loan amount. (1 point)

Q3. Given the following information, calculate the total amount of annual operating expenses for this income-producing property. Lawn care: $10,000, Property taxes: $24,000, Maintenance: $35,000, Janitorial: $25,000, Security: $32,000, Debt service: $145,000. (1 point)

Q4. Changes in the discount rate used to complete net present value analysis can have a significant impact on the estimated value of the investment and therefore affect the overall investment decision. As the required internal rate of return (IRR) increases, the net present value will (1 point):

A. decline

B. increase

C. remain the same

D. become zero