CHAPTER 3 3 a f You are considering the purchase of an apartment complex The following assumptions are made The purchase price is $1 million Potential gross income (PGI) for the first year of operations is projected to be $171,000 PGI is expected to increase 4 percent per year No vacancies are expected Operating expenses are estimated at 35 percent of effective gross income The market value of the investment is expected to increase 4 percent per year Selling expenses will be 4 percent The holding period is four years The appropriate rate of return to discount projected NOIs and the projected NSP is 12 percent The after debt required rate of return is 14 percent 70 percent of the purchase price can be borrowed with a 30 year, monthly payment mortgage The annual interest rate on the mortgage will be 11 5 percent Financing costs will equal 2 percent of the loan amount There are no prepayment penalties a Calculate net operating income (NOI) for each of the four years b Calculate the net selling price from the sale of the property c Calculate the net present value of this investment (assuming no mortgage debt) Should you purchase Why d Calculate the internal rate of return of this investment (assuming no debt) Should you purchase Why e Calculate the monthly mortgage payment What is the total per year f Calculatetheloanbalanceattheendofyears1,2,3,and4 (Note theunpaidmortgagebalanceatanytimeisequaltothepresentvalueoftheremainingpayments,discountedatthecontract face rateofinterest) CHAPTER 13 Questions 1 2 1 Given the following owners income and expense estimates for an apartment property, formulate a reconstructed operating statement The building consists of 10 units that could rent for $550 per month each Estimating vacancy and collection losses at 5 percent of potential gross income, reconstruct the operating statement to obtain an estimate of NOI Remember, there may be items in the owners statement that should not be included in the reconstructed operating statement 2 UsingtheNOIobtainedinCaseProblem1andanR o of11 0percent,calculatethepropertysindicatedvalue Roundyourfinalanswertothenearest$500

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CHAPTER 3

#3. a-f

You are considering the purchase of an apartment complex. The following assumptions are made:

The purchase price is $1 million.
Potential gross income (PGI) for the first year of operations is projected to be $171,000.
PGI is expected to increase 4 percent per year.
No vacancies are expected.
Operating expenses are estimated at 35 percent of effective gross income.
The market value of the investment is expected to increase 4 percent per year.
Selling expenses will be 4 percent.
The holding period is four years.
The appropriate rate of return to discount projected NOIs and the projected NSP is 12 percent.
The after-debt required rate of return is 14 percent.
70 percent of the purchase price can be borrowed with a 30-year, monthly payment mortgage.
The annual interest rate on the mortgage will be 11.5 percent.
Financing costs will equal 2 percent of the loan amount.
There are no prepayment penalties.

a.Calculate net operating income (NOI) for each of the four years.
b.Calculate the net selling price from the sale of the property.
c.Calculate the net present value of this investment (assuming no mortgage debt). Should you purchase? Why?
d.Calculate the internal rate of return of this investment (assuming no debt). Should you purchase? Why?
e.Calculate the monthly mortgage payment. What is the total per year?
f.Calculatetheloanbalanceattheendofyears1,2,3,and4.(Note:theunpaidmortgagebalanceatanytimeisequaltothepresentvalueoftheremainingpayments,discountedatthecontract[face]rateofinterest).

CHAPTER 13

Questions 1 &2

1.Given the following owners income and expense estimates for an apartment property, formulate a reconstructed operating statement. The building consists of 10 units that could rent for $550 per month each.Estimating vacancy and collection losses at 5 percent of potential gross income, reconstruct the operating statement to obtain an estimate of NOI. Remember, there may be items in the owners statement that should not be included in the reconstructed operating statement.
2.UsingtheNOIobtainedinCaseProblem1andanR_oof11.0percent,calculatethepropertysindicatedvalue.Roundyourfinalanswertothenearest$500.