1. Consider a Property with expected future NOI of $25,000 per year for the next 5 years (starting one year from now). After that, the operating cash flow will step up 20% to $30,000 for the following 5 years. Assume no capital- and leasing expenses.

(e) Assuming this is a representative example, what conclusions can you draw about the sensitivity

of property value to changes in expected cash flow growth compared to discount rate? One

sentence is a sufficient as an answer.

(f) Go back to the original assumptions (12% required return, 30% step-up of cash flows). Now suppose you want to take a 60% LTV loan to purchase this property. Please provide the equity before tax cash flows (EBTCF), debt service payments (interest and amortization) and the running outstanding loan balance to include this debt service. Perform these calculations for the following mortgage types:

i. Interest-Only Mortgage 10 year

ii. Constant Payment Mortgage 20 year amortization