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Homework answers / question archive / You wrap up the first part of your Stage 2: Discounted Cash Flow Analysis on a Mixed-Use Retail and Office Building assuming a three-year holding period below: The asking price is $3
You wrap up the first part of your Stage 2: Discounted Cash Flow Analysis on a Mixed-Use Retail and Office Building assuming a three-year holding period below:
The asking price is $3.7 million.
You should feel free to use any Excel Spreadsheets
(a). What Project Capitalization Rate is implied by the asking price state above?
(b). Market experts predict the capitalization rate for this type of property at the end of three years will be 9.0%. Brokers report that they typically charge 6% on a property.
What will the net sale price be if you sold the property at the end of year three?
Answer:
Part (a)
Ask Price = NOI of year 1 / Capitalization Rate
Hence, Capitalization Rate = NOI of year 1 / Ask Price = 326,000 / (3.7 x 106) = 8.81%
Part (b)
Sale Price at the end of year 3 = NOI of year 4 / Capitalization rate = 384,000 / 9% = $ 4,266,667
Net Sale price = Sale price x (1 - Brokerage) = 4,266,667 x (1 - 6%) = $ 4,010,667
PFA
