3. The NOI for a small income property is expected to be $150,000 for the first year. Financing will be based on a 1.2 debt coverage ratio (DCR) applied to the first year NOI, will have a 10% interest rate, and will be amortized over 20 years with monthly payments. The NOI will increase 3% per year after the first year. The investor plans to hold the property for five years. The resale price is estimated by applying a 9% terminal cap rate to the year 6 NOI. Investors require a 12% rate of return on equity for this type of property.

a. What is the present value of the equity interest in the property?

b. What is the total present value of the property (mortgage plus equity)?