An investor is evaluating a property with the following projected income and expenses:

Income $750,000 (year 1); increasing at 3.5% per year

Vacancy Loss 7.0% of PGI

Collection Loss 1.5% of PGI

Expenses:

Management Fee 2.5% of EGI

Property Taxes $75,000 (years 1 to 3); $90,000 (years 4 to 6)

Insurance $15,000 (year 1); increasing at 3.0% per year

Utilities $65,000 (year 1); increasing at 4.0% per year

Janitorial $50,000 (year 1); increasing at 3.0% per year

2.Assume that the investor can sell the property at the end of year 5 at a 7.0% residual cap rate on year 6 NOI and there are selling costs of 4.5%. What is the propertys residual value?

3.If an investor requires a 7.0% IRR, what is the NPV of the project?

4 Describe the investments position on the Real Estate Risk Curve. Give an example of something that could change at the property to cause the investment to shift.