Suppose you analyze a particular deal and by Prof. Tod McGrath @MIT

Question 12 / 31: Suppose you analyze a particular deal and it appears that for an investment of $1,000,000 your client can obtain a

positive NPV of over $500,000. Your client is typical of the type of high tax bracket individual investors who commonly

purchase and sell this type of property, and indeed typically determine equilibrium prices in the asset market in which these properties are sold. What should you do?

A Reject the deal out of hand because it costs twice as much as its NPV.

B Phone your client right away on your cell phone and urge her to pounce on this deal before
it "gets away" - the seller must have made a mistake in their offering price!

C Buy the property with cash, take out an 80% loan-to-value ratio mortgage, and laugh all the
way to the bank with $200,000 of arbitrage profits!

D Sharpen your pencil, double-check your assumptions and analysis, try to find what is unique
about your client. (e) Cannot be answered from the information given.

Sorry No Instant Evalutaion available for this question

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Real Estate Finance & Investment Midterm Exam 2003

Author:

Prof.Tod McGrathProfessor

MIT Massachusetts Institute of Technology

USA

Access: Public Peer Review

Attribution: Geltner, David, and Tod McGrath. 11.431J Real Estate Finance and Investment, Fall 2006. (MIT OpenCourseWare: Massachusetts Institute of Technology), http://ocw.mit.edu/courses/urban-studies-and-planning/11-431j-real-estate-finance-and-investment-fall-2006 (Accessed 1 May, 2014). License: Creative Commons BY-NC-SA

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