Question

Can you please help me with this questions below. Thanks

Consider the REIT valuation spreadsheet presented in class. For each of the following scenarios, and all other things equal, determine whether each scenario will increase, decrease or won’t affect the probability that new investors will achieve their levered required rate of return.

a. The price of the REIT is lower.

b. A distribution is defined for NOI growth rate, where the average value remains the same, but the right “tail” of the distribution is longer than the left “tail”.

c. The projected 10-year treasury rate is higher.

d. The quality adjustment value is lower.

e. The risk premium is lower.

f. The current market cap is higher.

g. The required levered return is higher.

Current share price 86.00 503,000 S 929,000 K 5 777,000 K S 264,000 K 5 87,000 K t Debt frec" private market value t private market value of equity t private market value per share free"value@ Req. return $13,881,375 K $11,269,375 K 515,575 5 528,464 $ 541,676 555,218 $ 569,098 (87,502) (87,502)$ (87,502) (87,502)$(87,502 122.49 512,449,222 K 5 7,912,000) 5 10,046,516 4.25% 7 00% Current Market CAF Req, unlevered return Req. levered return NOI growth rate Risk premium Total debt shares outstanding Projected 10-year treasury Quality adjustment Value of other assets Borrowingcost ue per share Req. return 106.93 467 250% 4.00% 5 2,612,000 K 92,000 K 3.75% 0.25% S 992,000 K

Answer 1

1. increase
2. increase
3. decrease
4. No effect
5. increase
6. increase
7. decrease