I have been given a sample problem and solution but seem to be stuck on a few points.
The sample problem and the given solution are as follows:
Given Variables:
A = Rent Percentage
B = Maximum Rent Percentage
C = Fee Hurdle
D = Rent Hurdle
T = Tenant Income
O = Operator Income
Given Values for Variables:
A and B = 20%
C = $75.68 million
D = $86.35
T and O = $100 million
Asked to solve this equation: Additional Rent = A (T - B(O - C) - D) / (1-AB)
The solution is given by plugging in the variables is as follows:
20% (100,000,000 - 20%(100,000,000 - 75,680,000) - 86,350,000) / 1 - (20% x 20%)
The solution results in Additional Rent: $1,830,000
^I can solve the above equation and get the correct result.
However, the variable "D" is defined in the problem set as follows:
"The Rent Hurdle ("D") is equal to 20% of the amount by which the Net Income of the project exceeds 11.0% of the Actual Capital Investment."
As seen above, the Rent Hurdle (variable D) is given as $86,350,000. Can I solve for the Actual Capital Investment by doing the following:
$86,350,000 = 11% (X) and then divide by 11% to get $785,000,000 (Actual Capital Investment) ? Is this correct? I recognize this is not a problem or number needed/used in the sample problem listed above. But just trying to understand if my logic is correct.
Finally, while "O" (Operator Income) is a given of $100 million (see above) there is a clarification in the problem set up that says: "Operator Income is revenue less expenses. Further, it states that the Fee Hurdle ("C") is an expense item in Operator Income ("O") and that the Fee Hurdle shall not exceed 20% of the portion of Operator Income that exceeds $75,660,000."
Is this why this term is shown in the denominator of the original equation: 1 - (20% x 20%) ???
The sample problem and the given solution are as follows:
Given Variables:
A = Rent Percentage
B = Maximum Rent Percentage
C = Fee Hurdle
D = Rent Hurdle
T = Tenant Income
O = Operator Income
Given Values for Variables:
A and B = 20%
C = $75.68 million
D = $86.35
T and O = $100 million
Asked to solve this equation: Additional Rent = A (T - B(O - C) - D) / (1-AB)
The solution is given by plugging in the variables is as follows:
20% (100,000,000 - 20%(100,000,000 - 75,680,000) - 86,350,000) / 1 - (20% x 20%)
The solution results in Additional Rent: $1,830,000
^I can solve the above equation and get the correct result.
However, the variable "D" is defined in the problem set as follows:
"The Rent Hurdle ("D") is equal to 20% of the amount by which the Net Income of the project exceeds 11.0% of the Actual Capital Investment."
As seen above, the Rent Hurdle (variable D) is given as $86,350,000. Can I solve for the Actual Capital Investment by doing the following:
$86,350,000 = 11% (X) and then divide by 11% to get $785,000,000 (Actual Capital Investment) ? Is this correct? I recognize this is not a problem or number needed/used in the sample problem listed above. But just trying to understand if my logic is correct.
Finally, while "O" (Operator Income) is a given of $100 million (see above) there is a clarification in the problem set up that says: "Operator Income is revenue less expenses. Further, it states that the Fee Hurdle ("C") is an expense item in Operator Income ("O") and that the Fee Hurdle shall not exceed 20% of the portion of Operator Income that exceeds $75,660,000."
Is this why this term is shown in the denominator of the original equation: 1 - (20% x 20%) ???
