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.

(a) If you expect to sell the property 10 years from now at a going-out cap rate of 10%, what is the value of the property if the required return is 12%?

(b) Now suppose the seller of the building wants $260,000. Should you make the deal? Why or why not?

(c) Suppose now that the required return on the property is 11%. What is the value of the property? By what percentage has this value changed from part 1a as a result of this 100 basis point change in the required rate of return?