An investor believes that a certain property by Prof. David Geltner

Question 3 / 22: An investor believes that a certain property is worth $10,000,000. The seller refuses to sell it for that amount, but has offered to provide a 5-year interest-only loan for $5,000,000 at 4% interest (annual payments at the ends of the years, first payment due in one year). Market interest rates on such a loan are currently 6.5%. How much should the investor be willing to pay for the property from an investment value perspective (taking the loan deal) if the investor faces a 30% marginal income tax rate? (Ch15)

A $10,000,000

B $10,383,588

C $10,403,023

D $10,519,460

E Insufficient information to answer the question.

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Real Estate Finance & Investment Final Exam 2006

Author:

Prof.David GeltnerProfessor

MIT Massachusetts Institute of Technology

USA

Access: Public Peer Review

Attribution: Geltner, David, and Tod McGrath. 11.431J Real Estate Finance and Investment, Fall 2006. (MIT OpenCourseWare: Massachusetts Institute of Technology), http://ocw.mit.edu/courses/urban-studies-and-planning/11-431j-real-estate-finance-and-investment-fall-2006 (Accessed 1 May, 2014). License: Creative Commons BY-NC-SA

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