Weighted Average Cost of Capital (WACC) for Golden Gate construction Associates

Weighted Average Cost of Capital (WACC) for Golden Gate construction Associates

Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has two sources of long-term capital: debt

and equity. The cost to Golden Gate of issuing debt is the after-tax cost of the interest payments on the debt, taking into account the fact that the interest payments are tax deductible. The cost of Golden Gate’s equity capital is the investment opportunity rate of Golden Gate’s investors, that is, the rate they could earn on investments of similar risk to that of investing in Golden Gate Construction Associates. The interest rate on Golden Gate’s $90 million of long-term debt is 10 percent, and the company’s tax rate is 40 percent. The cost of Golden Gate’s equity capital is 15 percent. Moreover, the market value (and book value) of Golden Gate’s equity is $135 million. Required: Calculate Golden Gate Construction Associates’ weighted-average cost of capital

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Finance Question II

Finance Question II

The real estate agent tells the Bergholts that if they don’t care to purchase, they might consider renting. The rental option would cost $1,400/month plus utilities estimated at $220 and renter’s insurance of $25/month. The Bergholts believe that neither of them is likely to be transferred to another location within the next five years. After that, Dan perceives that he might move out of government service into the private sector. Assuming they remain in the same place for the next five years, the Bergholts would like to know if it is better to buy or rent the home. They expect that the price of housing and rents will rise at an annual rate of 3% over the next five years. They expect to earn an annual rate of 5% on the money market fund. All other prices, including utilities, maintenance, and taxes are expected to increase at a 3% annual rate. After federal, state, and local taxes, they get to keep only 55% of a marginal dollar of earnings.

  1. Estimate whether it is financially more attractive for the Bergholts to rent or to purchase the home over a five-year holding period. (Assuming the contract interest rate of 8%, monthly interest payments over the five-year period would total $87,574.)
  2. Suppose it turns out that they have to relocate after one year. Which is the preferred alternative after one year? (Interest payments over the first year would equal $17,852.)

Show all work for each assignment and explain each step carefully.

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Mortgage Market – Property Financing

Mortgage Market – Property Financing in $5.99

1. If you’re considering purchasing a new home, the mortgage lender will probably require a down payment. The amount will be based on the lender’s required

A. loan-to-value ratio.
B. credit investigation.
C. home listing value.
D. market conditions.

2. Another requirement of lenders in considering mortgage loans is the borrower’s ability to repay the loan. In this regard, lenders often calculate an affordability ratio that’s

A. total debt payments, including the proposed loan, to net income.
B. total monthly payments on all debt to gross income, plus mortgage payments.
C. net income to total mortgage interest.
D. monthly mortgage payments to monthly gross income.

3. Variable auto ownership costs are most dependent on

A. driver behavior.
B. mileage driven.
C. city lived in.
D. down payment.

4. There are now many different types of transaction accounts. Entities that have grown very rapidly by pooling funds and offering check type transaction services are

A. commercial banks.
B. credit unions.
C. savings and loan organizations.
D money market mutual funds.

FIN 467 Entire course

FIN 467 Entire course (Real Estate Investment)

FIN/467 Entire course

FIN 467 Entire Class

FIN 467 Full Course

FIN/467 Full Course

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