1. Consider a private equity fund that is interested in investing in a development project. The project requires the fund to invest $5 million up front (time zero) and another $5 million at the end of year 1. (There is no construction debt.) The project is forecast to be complete and stabilized at the end of year 3. The development cap rate forecast is 9% and the market cap rate forecast is 6%. You will need the IRR function in Excel for this problem.

1. Find the project equity IRR
2. Now suppose that the fund finances the investments with subscription debt (loans backed by fund commitments). The debt caries a 4% interest rate and must be paid in full at the end of each year. Thus, the fund borrows the first $5 million and pays off the debt (including interest) at the end of the first year, and borrows the second payment and pays off the debt (including interest) at the end of the second year.