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8 May 2019

What are the main benefits and drawbacks of renting a place of residence?

Which components of a lease are likely to be most negotiable?

What do you believe are the most important factors a person should consider when selecting housing?

What are some common mistakes a person might make when renting an apartment or other housing?

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Elin Hessel
Elin HesselLv2
9 May 2019

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Stuyvesant Town is a sprawling collection of red brick apartment buildings with typical housing project style architecture, stretching from First Avenue to Avenue C between 14th and 23rd Streets in Manhattan. Stuyvesant Town has 8,750 apartments in 35 residential buildings. The surroundings of Stuyvesant Town are bordered by the East River on the east, the Gramercy neighborhood on the west, the East Village to the south, and Kips Bay to the north. The surrounding area to the west is notable for its historic Stuyvesant Square, a two block park surrounded by the old Stuyvesant High School, Saint George’s Church and the Beth Israel Medical Center. Since opening its doors in 1947 this has been a highly desirable place to live due to its location, surroundings, and family friendly neighborhood. Currently the apartments rent for the following: 1,500 1-Bedroom Units Renting @ $2500/month 2,500 2-Bedroom Units Renting @ $4250/month 4,000 3-Bedroom Units Renting @ $5800/month 750 5-Bedroom Units Renting @ $7500/month Additionally, this property has covered parking, a recreation facility, and other non-real estate revenue equal to 3.5% of the Potential Gross Rent. While this is a highly desirable place to live with a waiting list during most years there are times when apartments are empty while renovations occur. The vacancy expense is 2% of Potential Gross Income plus Other Income and Operating Expenses are typically 39% of Effective Gross Income. Your partnership is unable to lock down a favorable loan with the best rate having the following terms 55% LTV, 6.0% Interest Rate, 20-yrs, 10-yr Balloon Mortgage, 2.0 Pts, $1,000,000 in Fees. Unfortunately due to the strict loan terms you will need a second and third loan to buy this property as you feel ill-equipped for the necessary down payment. Due to the higher risk nature of this second loan the terms are even less favorable. For your second mortgage you will receive 15% LTV, 7.25% Interest Rate, 10-yrs, 2.0 Pts, $500,000 in Fees. And your third mortgage will come at 10% LTV, 8.5% Interest Rate, 10-yrs, 3.0 Pts, $300,000 in Fees. General Market Terms for DCR = 1.33, EDR = 6.5%, BV/TV = 0.4 still apply. Despite inflation being quite low currently the partners ask you to model inflation at 3% for all 10-years. Also, due to the standard of living Stuyvesant provides to those that live within this oasis in Manhattan appreciation is expected to be equal to the inflation rate. This investment on behalf of the partnership is expected to last 10 years at which time the market for housing is expected to be robust and the partnership will then sell the investment and invest the profits elsewhere. The sales expense at that time is expected to be 1.5%. However, despite the return to a “normal” real estate market the partnership will most likely accept an offer at 3% less than the full value of the property. Calculate and show the Annual Cash Flows, Taxes (utilize and show both methods), IRR & NPV for your Partnership (Round all dollar answers to the nearest dollar, use 20% for the capital gains tax, use 25% for depreciation recapture tax rate, the head of household tax bracket for the tax rates and assume that losses cannot be carried forward). Would you make these loans to the partnership? Make sure to comment on why or why not. In addition, calculate a Potential ROE/Leverage Chart for the first year as computed in class based on 0%, 55%, 70%, and 80% Leverage to illustrate whether this is (1) positive financial leverage, (2) negative financial leverage, or (3) neutral financial leverage and explain why.

During week 6 we develop the theory and application of capital budget analysis. The theory was robust, the calculations mathematically and logically defined, and many of the real-world problems, likely to be encountered, were addressed. As capital budgeting essentially re-invents the company through major long-term expenditures it is arguably one of the most critical functions that financial management performs. However, based on my personal experiences, extensive empirical data, and antidotal data - many firms routinely experience significant failures in their selection of capital projects.

Briefly review either your personal experiences and/or the financial literature to identify and present a description of one actual capital project/product failure and the reasons attributed to the failure. For those of you who do not have personal experiences the following are some illustrated examples of failed projects/products over the last 50 years you may want to look up and consider: -New Coke,- The Iridium Satellite Communication,- the Edsel automobile, Beta (vs. VHS), the Concord SST, and various Dot Coms. Feel free to research others.

Synthesize your one-paragraph position on what 3-5 specific factors you believe most likely to contribute to capital project analysis failure.

You are expected to make your own contribution in a main topic as well as respond with value added comments to at least two of your classmates as well as to your instructor.

A. A dividend policy represents the firm’s plan of action to be followed whenever it makes a dividend decision. What are the five factors in establishing a dividend policy? Elaborate and explain.

B. There are those that like to look at the return, or a dividend, that they would get for purchasing the stock. If you ever pay attention to the financial area of the news where companies say that they expect to have a dividend return next quarter of a certain amount and when they acheive this the stock would increase meaning that the stock is a good stock to have in ones portfolio, however if they do not, which is what we hear most often, the stock value would drop based on the fact that some would sell their stock to maybe buy a stock worth more when it comes to dividends. However there are times when looking at the dividend is not appropriate when looking at the stocks. There are companies that are growing rapidly and need to hold onto their cash to keep reinvesting in the growth process so they would not be giving out a dividend. There are companies that the dividend being lowered has nothing to do with the market however the company has decided that they would like to expand and so they hold onto their money and lower the amount of dividend or maybe pay out a stock dividend instead. If this is the case some times it would be a good stock to hold onto, however if it is to pay off debt because they are struggling then it might be a different case. Of course paying off debt now to grow later and still pay dividends is not a bad thing either. So know the company and research what is going on from time to time to make an educated decision.

What are your thoughts on this statement? elaborate and explain

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