(1 ) You are offered a residential commercial property in Almahboola area where the offer price by its seller is KD 3,500,000. You dragged your feet and were able to collect the following information:

• The annual increase in the building value is 2.5%
• Current monthly rents of the building are KD 20,000 and are expected to grow by a 2% annually
• Vacancies are expected to be 5% of rents
• The overall operating expenses are expected to be 15% of the EGI
• Based on the above data, your bank offered you the maximum of 35% fully amortizing loan with 5% interest for 14 years

Armed with your MSF intellectual education and training, you decided to calculate the IRR of this investment assuming a 5 years holding period, then sell the property. What would be your recommendation?

(2 ) You are hired by Alghanim Industries to evaluate a lease-buy decision of a building that they need to expand their business. The building is offered at a KD 5,000,000 (of which 10% is a land value). The economic life of the building is 50 years. The building value appreciates 3% annually. Instead, Alghanim Industries could lease the building for the next 10 years at KD 300,000 annually, and will increase by 2% annually. If you know that the expansion in asset size will result in (a) the annual sales of Alghanim Industries are expected to increase by KD 1,100,000; (b) the associated operating expenses are expected to increase by KD 120,000; (c) furnishing the building will cost KD 3,000,000, would you recommend leasing or buying the building? Why? (Show the required calculations)

(3 ) Suppose that Turki decided to enter a joint venture with Dari in a private equity project, where Turki contributes KD 3,000,000 and Dari contributes KD 1,000,000. They also agreed on the following:

• Each year, Turki receives 10% on his equity from the annual operating cash flows before Dari receives anything
• If there is enough, Dari receives 5% on his equity from the annual operating cash flows, or only the left over
• Any remaining CF from the annual operating cash flows is to be split equally between Turki and Dari
• After 5 years, the private equity project is sold and the proceed is divided such that, if possible, Turki receives sufficient amount to earn 15% IRR while the remaining goes to Dari
• Assume that after 5 years, the following figures came out:

Time	1	2	3	4	5
CF (KDs)	200,000	400,000	600,000	800,000	900,000
Project Sale Proceed (KD)	5,000,000

Who do you think (Turki or Dari) has achieved higher profitability (i.e. IRR)? How do you explain the higher return in terms of the risk profile of the higher-return investor?

(4) Due to a recent decrease in real estate prices, you want to buy a commercial real estate that is priced at KD 15 million. Since you don't have the full amount, you resort to one of the KFH financing schemes. After negotiation, you agree that you contribute KD 5 million while KFH finances KD 10 million. For investment purposes, you both agree to lease the commercial building to a third party at KD 300,000 paid annually. You also agree to payback KFH's money by purchasing its ownership by paying KD 2 million every year.

You need to (1) fill out the following table with respect to the proper calculations of the declining ownership (Diminishing Musharakah) transaction; (2) calculate the IRR for the bank?

Time	Your Ownership	Your Share of Rent	Bank Share of Rent	Your Annual purchase	Payment to Bank