5) NPV and IRR

(NOTE: Don't be concerned about the use of the "after tax" language here. You should just get used to seeing it because you need to be aware of both your pre- and post- tax position in a deal.)

You are considering investing $25,000,000 to purchase an office building. The following are the projected ATCF's (After Tax Cash Flows) at the end of each year along with the after tax reversion (i.e. how much you plan to sell the building for). Note: You must enter a value in Year 0 to complete this problem! Nothing should be entered in the row labeled Reversion until year 4.

Year	0	1	2	3	4
ATCF	-$25,000,000	$650,000	$850,000	$950,000	$1,000,000
Reversion	lllllllllllllll	lllllllllllllllllll	kkkkkkkkkkk	Hxhhhxhhhh	$30,500,000

a) What is the NPV (net present value) of this project if your required rate of return is 9.25% (annually)?

Cf0 =

Cf1 =

Cf2 =

Cf3 =

Cf4 =

I =

NPV, CPT =

b) What is the IRR (internal rate of return) of this project? Do you want to make the investment? Why?

4) Mortgage Calculations and Amortization

a) You have just bought a house that has a purchase price of $450,000. The loan has a 70% LTV (loan-to-value ratio). What is the amount of the loan for which you are eligible?

b) The mortgage will fully amortize over 25 years with a rate of 6%, compounded monthly. What are your monthly payments for this loan?

PV=

N=

I/Y=

CPT, PMT =

c) Suppose you have a loan for $250,000 fully amortizing over 25 years at 5.5%, compounded monthly. What is the monthly payment on the loan?

PV=

N=

I/Y=

CPT, PMT =

(Note: for problems d through f, use the loan information given above in problem c.)

d) What is the outstanding balance at the end of 10 years (i.e. at the end of the 120^th month)?

PV=

PMT=

N=

I/Y=

FV =

e) How much principal has been paid to date?

f) How much interest have you paid to date?