1. a) Use the table below to estimate the annual Net Operating Income (NOI) for the first and second year of a building with 8 apartments that are currently rented for $1,125 / month each given the following assumptions:

• Capital Expenditures (CAPX) equal to 15% of Effective Gross Income (EGI)
• Potential Gross Income (PGI) increases at 5% per year
• Anticipated Vacancy and Collection Losses of 10% of PGI
• Operating Expenses (OE) equal to $17,440 and $18,110 during 1^st and 2^nd year

	1st Year	2nd Year
PGI
VC
EGI
OE
CAPX
NOI =

1. b) What is the estimated market value of the same building described above utilizing the direct capitalization method if the cap rate for apartments of similar quality is 8%? Use the 2^nd year NOI solved for above.