1: Using these assumptions, answer the questions underneath

• A 2-year levered equity investment between t=0 and t=2.
• The first NOI is 10 at t=1, and NOI grows at 5%/yr until t=3.
• The cap rate is 5% (going-in) at t=0 and increases by 0.5%/yr to 6% (going-out) at t=2.
• Capital Expenditures are 10% of NOI.
• The investment is levered with a two-year interest-only loan at a 5% interest rate with the face value of 80 (i.e., the initial loan amount is 80).

A.) What is the Cap rate at T= 0, T=1, and T=2

B.) NOI at T=1, T=2, T=3

C.) Acquisition cash flow at T=0

D.)Capital expenditures at T=1 and T=2

E.)Disposition cash flow at T=2

F.) Property BT CF at T=0, T=1, and T=2

G.)Loan at T=0

G.)DS including the final pmt at T=1 and T=2

H.)Equity BT CF for T=0, T=1, and T=2

Task 2: Estimate the percentage-point contribution to the equity IRR of (1) the baseline return under no NOI growth and no cap rate change, (2) NOI growth, (3) cap rate changes, and (4) leverage. Furthermore, (5) estimate the equity IRR by adding (1), (2), (3), and (4)