Given the following information, calculate the going-in capitalization rate for the following apartment complex. In your calculations, assume no miscellaneous income and above-the-line treatment of capital expenditures. Number of apartment units: 15
Monthly rent per unit: $3,000
Vacancy and collection loss: 10% of potential gross income
Operating expenses: 5% of effective gross income
Capital expenditures: 10% of effective gross income
Acquisition price: $3,420,000

a. 0.81%
b. 1.01%
c. 13.50%
d. 15.79%
e. 12.08%

The correct option is b. 1.01%.

Explanation:

This can be calculated as follows:

Potential gross income = Number of apartment units * Monthly rent per unit = 15 * $3,000 = $45,000

Therefore, we have:

Details                                                                              Amount ($)

Potential gross income (PGI)                                              45,000

Vacancy and collection loss (10% of PGI)                          (4,500)

Effective gross income (EGI)                                              40,500

Operating expenses: 5% of effective gross income        (2,025)

Capital expenditures (10% of effective gross income)      (4,050)  

Net operating income                                                        34,425

Acquisition price = 3,420,000

Going-in capitalization rate = Net operating income / Acquisition price = $34,425 / $3,420,000 = 0.0101, or 1.01%

Therefore, the correct option is b. 1.01%.

a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.