1.A property produces a PGI of $200,000. Market vacancy rate is estimated at 5%.The OER is 40% which is also indicative of the market. For this type of property, lenders observe a strict adherence to a coverage ratio (DCR) of 1.20.Financing is available at 5% with monthly payments for 30 years. The anticipated growth in NOI is 3% per year, compounded: and property value appreciation rate is 4% per year, compounded over 5 year holding period. Assuming a before-tax equity yield requirement of 12%, price (or value) this property on BTCF basis utilizing the Discounted Cash Flow (mortgage equity) framework.

2.An investor is considering an investment that has a Market Value of $2.5millions. The following information can be obtained:

Rent = $1,200 per unit per month. Rental Growth Rate = 3% per year compounded.

Number of units = 20

Vacancy rate is 12%.

Operating expenses = $125,000. Operating Expense Growth Rate = 3% per year compounded.

Loan-to-value ratio is 80%.

Interest rate on mortgage is 6%.

Maturity of mortgage = 15 years (with monthly payments).

Financing Costs = $30,000 amortized over life of the mortgage.

Depreciable basis = 75 percent of total cost

Depreciable life = 27.5 years (use 25% max for DEPR tax and 15% for CG tax)

Expected appreciation rate = 3% per year, compounded.

Anticipated Holding period = 5 years

The marginal tax rate of investor is 34%.

Expected Selling Expenses = 6%.

Required after-tax Return on Equity = 8%.

a)Calculate the NPV and IRR for the project on after-tax basis.(40%)

b)Calculate the following rules of thumb: Potential Gross Income Multiplier (PGIM); Capitalization Rate(R), Operating Expense Ratio (OER), Equity Dividend Rate (EDR); and Debt Coverage Ratio (DCR); and Brokers Rate of

Return for the project. (15%)

c)Based on the results on (a) and (b), above, will you recommend this project to the equity investor (your client)? Why? How about if your client were to be a mortgage lender, will you still recommend this project to your lender client? Why?(7%)

How are property managers potentially able to enhance value?(3%)