Chartered Financial Analyst Level 2
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- An analyst gathers the following information about a REIT:
- Estimated net operating income in Year 1:
$346,000 - Cash and cash equivalents:
$43,000 - Land held for development:
$38,000 - Accounts receivable:
$29,000 - Total debt:
$1,440,000 - Cap rate: 7.2%
- Shares outstanding: 63,000
The REIT's NAV per share is closest to:
Exam-Like
A
$55.17
B
$76.28
C
$77.67
Explanation:
Calculation of NAV per Share
Step 1: Calculate the value of real estate assets
\text{Value of real estate} = \frac{\text{Net Operating Income}}{\text{Cap Rate}} = \frac{\`$346`,000}{0.072} = \`$4`,805,556Step 2: Calculate total assets
\text{Total Assets} = \`$4`,805,556 + \`$43`,000 + \`$38`,000 + \`$29`,000 = \`$4`,915,556Step 3: Calculate Net Asset Value (NAV)
\text{NAV} = \text{Total Assets} - \text{Total Debt} = \`$4`,915,556 - \`$1`,440,000 = \`$3`,475,556Step 4: Calculate NAV per share
\text{NAV per share} = \frac{\text{NAV}}{\text{Shares outstanding}} = \frac{\`$3`,475,556}{63,000} = \`$55.17`Wait, this gives us $55.17 which matches option A. Let me double-check the calculation:
- Real estate value:
$346,000 / 0.072 =$4,805,556 ✓ - Total assets:
$4,805,556 +$43,000 +$38,000 +$29,000 =$4,915,556 ✓ - NAV:
$4,915,556 -$1,440,000 =$3,475,556 ✓ - NAV per share:
$3,475,556 / 63,000 =$55.17✓
However, I notice that the question asks for the NAV per share and the options include $55.17, $76.28, and $77.67. My calculation gives $55.17, but let me check if there's an alternative approach.
Alternative approach - using enterprise value:
\text{Enterprise Value} = \frac{\text{NOI}}{\text{Cap Rate}} = \`$4`,805,556 \text{Equity Value} = \text{Enterprise Value} - \text{Debt} + \text{Cash} = \`$4`,805,556 - \`$1`,440,000 + \`$43`,000 = \`$3`,408,556 \text{NAV per share} = \frac{\`$3`,408,556}{63,000} = \`$54.10`This still doesn't match the higher options. Let me reconsider the calculation:
Actually, for REIT NAV calculations, we should include all non-real estate assets:
= \`$4`,805,556 + \`$43`,000 + \`$38`,000 + \`$29`,000 = \`$4`,915,556 \text{NAV} = \`$4`,915,556 - \`$1`,440,000 = \`$3`,475,556 \text{NAV per share} = \`$3`,475,556 / 63,000 = \`$55.17`This confirms that $55.17 is the correct answer, which corresponds to Option A.
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