6. Suppose that you purchased a shopping center for $15 million using a 20-year

Question

6. Suppose that you purchased a shopping center for $15 million using a 20-year loan for 80% of the purchase price with an annual interest rate of 4% with monthly payments and monthly compounding. You plan on selling the property at the end of the 5th year and predict that the future selling price will be $19.5 million. If selling expenses are expected to be 3% of the future selling price, what will be before-tax equity reversion be from the sale of the property at the end of the 5th year?

Please show how to solve with BA II Plus calculator

Explanation / Answer

ITEM AMOUNTu

loan amount (15m*80%) = $12m @8%

monthly payments = $57,290

paid amonut for 5yrs( $57,290*12*5) = $3,437,400 (see below instructions)

Selling price (19.5m ) = $19.5 m

less: selling expenses(19.5*3%) =$585,000

   Net selling price = $18,915,000

less:unpaid balance ($57,290*12*25) =$17,186,941

Before tax-equity reversion =$1,728,059

how to calculate with BA II Plus calculator

The monthly payment is $57,290

Note: The payment is displayed as -$57,290  because it is a negative cashflow.

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