A real estate investor is considering the purchase of a four-unit apartment building. The following information is known: The purchase price is $750,000 with an additional $7,500 in acquisition costs. The first years rent for each unit is $2,250 per month. Rents are expected to increase at a rate of 5 percent per year. Vacancy is estimated to be 8 percent of gross revenue. Operating expenses are expected to be 30 percent of EGI. Of the total cost, 80 percent is depreciable. The project can be financed with a first mortgage of $575,000 at an interest rate of 5.00 percent for 20 years, monthly payments. Financing costs (discount points, etc.) are estimated at 5 percent of the loan amount. There is a prepayment penalty of 4 percent of the outstanding balance if the loan is paid off within the first eight years of the mortgage life. The value of the investment is expected to increase at a rate of 6 percent per year. Selling expenses equal 8 percent of the selling price. The investors holding period is three years. The investor is considered an active participant in the project and is in a 30 percent marginal tax bracket. The investors required after-tax equity yield is 12 percent. Depreciation recovery is taxed at 25% and long-term capital gains are taxed at 20%.

A. What is the initial equity investment? $______________

B. What is the NPV for the investment? $_______________

C. What is the IRR for the investment? $_______________

D. What is the modified IRR if the cash flows are reinvested at 5%? $_______________