Between your own savings, family, and friends you pull together commitments for $2.5 million in equity and start to look for investment opportunities. Youvepromised your investors (and yourself!) a minimum return on equity of 8%.

1(a). You find a small multifamily investment property which, after months of negotiations, the owner agrees tosell for exactly $2.5 million. The Net Income (after all expenses and including appreciation) is expected to be$175,000 per year.If you bought it with all cash (i.e. you used no financing) would your investors be satisfied?

1(b). Your investors are concerned about how realistic the profit projections are on this investment are and ask you to do some more analysis. They want to knowat what Net Income would result in them making a 0% return on their equity.What actual Net Income for this investment would result in a Return on Equity of 0%? Show your work

1(c). The owner of the property mentions that they own a second multifamily property thats three times the size of thefirst, makes three times the income ($525,000 per year), and which shes willing to sell you for three times the price($7.5 million).You find a lender who would be willing to loan you $5 million toward the purchase. After all interest and fees, thefinancing expenses for the loan will be $290,000 per year.Looking only at Return on Equity, would your investors be satisfied with this arrangement? What is the Return onEquity from this investment? Show your work (a table may be useful).

What is the Returnon Equity from this investment? Show your work

1(d). Your investors are (again) concerned about how realistic the profit projections are.What actual Net Income (before financing expenses) for this second multifamily investment property would result in a Return on Equity of 0%? What does thissay about the effect leverage has on risk? Show your work.Hint: If you used a table for Q1(c) you can copy and paste that table below and make modifications as needed.