You’ve saved up $1 million in cash and are ready to deploy it in the booming Car Wash market in your hometown.

Q5(a). Your first prospect is Ricardo’s Car Wash (located over on Distant Street) which can be purchased for exactly $1 million. The annual net operating income from the project is $130,000.

What Return on Assets does Ricardo’s Car Wash produce? Show your work

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Q5(b). If you decided to purchase Ricardo’s Car Wash using only your own money, what would your return on entrepreneurial equity be in Year 1? Show your

Q5(c) Scouring the market further, you find Jeff’s Car Wash (located on Side Street) which is for sale for exactly $2 million and produces $260,000 of annual net operating income.

What Return on Assets does Jeff’s Car Wash produce? Show your work

Q5(d). After talking to a lender, you find they’re willing to lend up to 50% loan-to-value on Car Wash projects. The loans are interest-only and carry a 5.5% interest rate.

If you decided to purchase Jeff’s Car Wash using all $1 million of your own entrepreneurial equity and a $1 million (50% LTV) bank loan, what would your return on entrepreneurial equity be in Year 1? Show your work (a table may be helpful to you).

Keyboard ShortcutsQ5(e). Going back to the market, you find Annie’s Car Wash (located on Main Street) which is for sale for $4 million and produces $520,000 of annual net operating income.

5e What Return on Assets does Annie’s Car Wash produce? Show your work.

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Q5(f). You find an investor who is willing to provide up to $1 million in investor equity on which they require a simple 10% return on equity per year.

If you decided to purchase Annie’s Car Wash using a $2 million bank loan (50% LTV), $1 million of investor equity, and all $1 million of your Entrepreneurial Equity would your return on entrepreneurial equity be in Year 1? Show your work (a table may be helpful to you).