An institutional investor is comparing management fees for two competing real estate investment funds. Both funds expect to beginoperations and are accepting capital commitments. When the funds begin acquiring properties, capital calls will be made for capitalcontributions during the investment period. Fund A will charge a fee of 45 BP on capital committed and 60 BP on capital invested afterthe investment period ends. Fund B will charge a fee of 50 BP on capital committed and 55 BP on capital invested after the investmentperiod ends. Both funds expect to have $506,000,000 in capital commitments when the fund commences operations and both projecta five-year cycle for startup and acquisitions. Capital flows are expected as follows:Fund AYear 1Year 2Year 3Year 4Year 5Fund BYear 1Year 2Year 3Year 4Year 5ContributedCapital$ 202,400,000303,600,000ContributedCapital$ 303,600,000202,400,000Required AFund AFund BCapital Returned$000Required B101,200,00050,600,000Capital ReturnedTotal Fees$00Required:a. What will total fees be for Fund (A)? For Fund (B)?b. Would one of the fee structures cause the manager to want to hold the properties longer before selling than the other fee structure?if so, which one?50,600,000101,200,000Complete this question by entering your answers in the tabs below.Invested Capital$ 202,400,000506,000,000506,000,000404,800,000354,200,000Invested Capital$ 303,600,000506,000,000506,000,000455,400,000354,200,000What will total fees be for Fund (A)? For Fund (B)?

Fund AYearCapital Committed (A)Capital Invested (B)Fees of A @0.45%Fees of B @0.60%1$506,000,000…

perations and are accepting capital commitments. When the funds begin acquiring properties, capital calls will be made for cap ontributions during the investment period. Fund A will charge a fee of 45 BP on capital committed and 60 BP on capital investe e investment period ends. Fund B will charge a fee of 50 BP on capital committed and 55 BP on capital invested after the inve eriod ends. Both funds expect to have $506,000,000 in capital commitments when the fund commences operations and both five-year cycle for startup and acquisitions. Capital flows are expected as follows: und A Year 1 Year 2 Year 3 Year 4 Year 5 und B Contributed Capital Year 4 Year 5 $ 202,400,000 303,600,000 Contributed Capital Year 1 $ 303,600,000 Year 2 202,400,000 Year 3 Capital Returned Invested Capital $0 $ 202,400,000 506,000,000 506,000,000 404,800,000 354,200,000 101,200,000 50,600,000 Capital Returned Invested Capital $ 303,600,000 506,000,000 506,000,000 455,400,000 354.200.000 $0 0 0 50,600,000 101.200.000

perations and are accepting capital commitments. When the funds begin acquiring properties, capital calls will be made for cap ontributions during the investment period. Fund A will charge a fee of 45 BP on capital committed and 60 BP on capital investe e investment period ends. Fund B will charge a fee of 50 BP on capital committed and 55 BP on capital invested after the inve eriod ends. Both funds expect to have $506,000,000 in capital commitments when the fund commences operations and both five-year cycle for startup and acquisitions. Capital flows are expected as follows: und A Year 1 Year 2 Year 3 Year 4 Year 5 und B Contributed Capital Year 4 Year 5 $ 202,400,000 303,600,000 Contributed Capital Year 1 $ 303,600,000 Year 2 202,400,000 Year 3 Capital Returned Invested Capital $0 $ 202,400,000 506,000,000 506,000,000 404,800,000 354,200,000 101,200,000 50,600,000 Capital Returned Invested Capital $ 303,600,000 506,000,000 506,000,000 455,400,000 354.200.000 $0 0 0 50,600,000 101.200.000

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 52P

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An institutional investor is comparing management fees for two competing real estate investment funds. Both funds expect to begin operations and are accepting capital commitments. When the funds begin acquiring properties, capital calls will be made for capital contributions during the investment period. Fund A will charge a fee of 45 BP on capital committed and 60 BP on capital invested after the investment period ends. Fund B will charge a fee of 50 BP on capital committed and 55 BP on capital invested after the investment period ends. Both funds expect to have $505,000,000 in capital commitments when the fund commences operations and both project a five-year cycle for startup and acquisitions. Capital flows are expected as follows: Fund A Year 1 Year 2 Year 3 Year 4 Year 5 Fund B Year 1 Year 2 Year 3 Year 4 Year 5 Contributed Capital $ 202,000,000 303,000,000 Contributed Capital $ 303,000,000 202,000,000 Capital Returned $0 0 0 101,000,000 50,500,000 Capital Returned 0 0 50,500,000…
An institutional investor is comparing management fees for two competing real estate investment funds. Both funds expect to begin operations and are accepting capital commitments. When the funds begin acquiring properties, capital calls will be made for capital contributions during the investment period. Fund A will charge a fee of 45 BP on capital committed and 60 BP on capital invested after the investment period ends. Fund B will charge a fee of 50 BP on capital committed and 55 BP on capital invested after the investment period ends. Both funds expect to have $506,000,000 in capital commitments when the fund commences operations and both project a five-year cycle for startup and acquisitions. Capital flows are expected as follows: Fund A Contributed Capital Capital Returned Invested Capital Year 1 $ 202,400,000 $ 0 $ 202,400,000 Year 2 303,600,000 0 506,000,000 Year 3 0 506,000,000 Year 4 101,200,000 404,800,000 Year 5 50,600,000 354,200,000 Fund B…
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