Market financing covers 75% of value at an annual mortgage constant of 6%, and the remaining equity requires an annual equity dividend rate of 12%. What overall rate does the band of investment indicate?
Correct Answer
B) 7.50%
Ro=0.75×0.06+0.25×0.12=0.075; percent=7.5. Common errors: averaging the two rates instead of weighting them gives 9.00%; swapping the debt and equity weights gives 10.50%; leaving out the debt component gives 3.00%.
Why This Is the Correct Answer
Ro=0.75×0.06+0.25×0.12=0.075; percent=7.5. Common errors: averaging the two rates instead of weighting them gives 9.00%; swapping the debt and equity weights gives 10.50%; leaving out the debt component gives 3.00%.
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A comparable property with 2,400 square feet sold for $396,000. The subject has 2,200 square feet and is otherwise identical. Market evidence shows that price varies in direct proportion to area, at a constant price per square foot, with area measured consistently. What value does this indicate for the subject?