Question

QUESTION 11 Given the following information, calculate the equity dividend rate for this investment: first-year NOI: $18,750; before-tax cash flow: $11,440; acquisition price: $520,000; equity Investment: a) 20%. b) 3.6% c) 11.0% d) 2.2% e) 18.02%.

Answer 1

The equity dividend rate is determined by dividing the before-tax cash flow by the equity investment in dollars, which is calculated as the acquisition price times the equity investment percentage. For a 20% equity investment on a $520,000 property with a before-tax cash flow of $11,440, the equity dividend rate would be around 11.0%.

Step-by-step explanation:

To calculate the equity dividend rate, you need to determine the rate of return on the equity portion of an investment. The student is provided with the first-year Net Operating Income (NOI), the before-tax cash flow, the acquisition price, and various percentages representing the equity investment. The formula to calculate the equity dividend rate is the before-tax cash flow divided by the equity investment. To find the equity investment in dollars, multiply the acquisition price by the percentage of the equity investment. You can then divide the before-tax cash flow by the equity investment in dollars to get the equity dividend rate.

For example, if the equity investment is option (a) 20%, you would calculate the equity investment in dollars as $520,000 * 0.20 = $104,000. The equity dividend rate would then be the before-tax cash flow of $11,440 divided by the equity investment in dollars of $104,000, resulting in an equity dividend rate of approximately 11.0%.

Answer 2

Answer: D. 2.2%

Explanation: Equity Dividend Rate is calculated by dividing the Before Tax Cash Flow by the Acquisition price. If you need the answer in percentage form, you then multiply by 100.

Here, before-tax cash flow = $11,440

Acquisition price = $520,000

So Equity Dividend Rate =
`(11440)/(520000)` X 100

Equity Dividend Rate = 2.2%

In this question, you do not need the Net Operating Income (NOI). You only need the NOI if the Before Tax Cash Flow is not given and the debt service payment is. If this is the case, you subtract the debt service payment from the NOI to get the Before Tax Cash Flow.