An investor would like to purchase a new office property for $2.75 million. However,she faces the decision of whether to use 70 percent or 80 percent financing. The 70 percent loan can be obtained at 5.00 percent interest for 20 years. The 80 percent loan can be obtained at 5.50 percent interest for 20 years.

NOI is expected to be $175,000 per year and increase at 3.0 percent annually, the same rate at which the property is expected to increase in value. The project is expected to be sold after five years.

1. What would the BTIRR be at each level of financing (70 or 80%) (assume monthly mortgage amortization)?

2. Does each loan offer favorable financial leverage? Which would you recommend?

PLEASE USE EXCEL AND SHOW THE PROCESS