Assumptions for Bramco Office Park

• Acquisition Price: $650,000
• Office Mix: 3 suites @ $1475/month and 2 suites @ $2400/month
• Annual Rent Escalation: 3%
• Vacancy and Collection Losses: 10%/year of PGI
• Operating Expenses: 45% of EGI
• Expected Holding Period: 5 years

Debt Assumptions for Bramco Office Park

• Loan to Value: 75%
• Financing Costs: 3%
• Interest Rate: 6.5%
• Term/Amortization: 30 Years

Assignment

1. Based on the above assumptions, calculate all 8 common ratios set forth in Exhibit 18.6 (and explain whether they are within the desired range for investors and lenders).
2. Calculate the NPV for BCTF (Before Tax Cash Flow) using a 12% discount rate and without using the formula in Excel. Use Exhibit 19-6 as a model, figuring out the PV for the cash flow for each year the old fashioned way and then comparing it to the initial equity. Assume the property was sold in the 6^th year.
3. If the IRR is exactly the same as the discount rate, what will be the NPV of the project? As a general rule (a) what happens to the NPV as the IRR increases and (b) what happens to the IRR as leverage increases?