An investment group requires a 12% rate of return as well as at least $2,000,000 in value enhancement. It is considering some alternatives for an investment property purchased five years ago. They would like the real estate manager to perform an analysis of the next five years, assuming the sale at the end of year five. The property was purchased based on the following information. (Questions 1-2) Purchase price: $4,500,000 Initial loan amount: $2,900,000 Interest rate: 8% Loan term: 30 years Current (going-in) market capitalization rate: 8% Going-out capitalization rate: 10% Cost of sale: 3.5% Gross potential income (GPI): 2,500,000, expected to increase by 3% per year starting next year Operating expenses: $900,000, expected to increase by 2% per year starting next year After discussions with the investors, the real estate manager decides to test the feasibility of performing an extensive renovation of the common areas of the property at a cost of $500,000 as well as a moderate upgrade of the common exterior and landscaping area at a cost of $300,000. Based on a survey of comparable properties and an analysis of the supply, demand, and absorption statistics, the real estate manager concludes that these improvements will increase the gross potential income (GPI) by 6% per year starting next year. Expense escalations are expected to remain the same at 2% annually. What is the anticipated value enhancement for year five?

Options: a. $2,718,912, b. $3,018,912, c.$3,218,912, d. $3,438,912