You are interested in investing in a building costing £10,000,000. You can either finance the purchase of the building u

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You Are Interested In Investing In A Building Costing 10 000 000 You Can Either Finance The Purchase Of The Building U 1 (14.29 KiB) Viewed 34 times

2.1 Assuming
that Mortgage A is selected, calculate the net present value of the
investment. Use the cost of equity that you calculated in Question
1.1 as the appropriate discount rate. Round your calculated answer
to the nearest
pound.
2.2 Assuming
that Mortgage B is selected, calculate the net present value of the
investment. Use the cost of equity that you calculated in Question
1.2 as the appropriate discount rate. Round your calculated answer
to the nearest
pound.
2.3 Based on
your answers in 2.1 and 2.2, state which mortgage you would choose,
and justify your answer. Limit your answer to 50
words.
You are interested in investing in a building costing £10,000,000. You can either finance the purchase of the building using either: > Mortgage A and a 40% loan-to-value ratio; or > Mortgage B and a 50% loan-to-value ratio. Further details regarding the mortgages are provided in Table 1. You require an 8% return on an unlevered equity investment. You anticipate receiving £1,000,000 in rental income at the end of every year for five years. You plan to sell the building after five years for £11,000,000. Table 1: Mortgage details. Mortgage A Mortgage B Interest rate per annum Compounded Payment frequency Type Loan-to-value ratio Term (years) 5% Annually Annually in arrears Interest-only 40% 5 5% Annually Annually in arrears Constant payment 50% 5