Evaluate the purchase of an existing 850 unit apartment complex for $4200000, the building is assumed to have a 20 year functional life. Treat the rents as being collected at the end of each year, along with associated variable and fixed costs. Assume rent controls will prohibit the rent from being raised over the life of the building. Assume that the underlying property reverts to the original owners at the end of twenty years, and that you will also be responsible for demolition and clean-up costs, to be incurred at the end of the buildings life.

- Rentals are estimated at 765 units per year

- Each unit will be rented for a cumulative monthly amount of $6100 per year

- Cost per unit when rented $4300 per year

- Fixed costs $250000 per year for the building, other than the initial investment

- Demolition/Clean up $3400000 after-tax

- Depreciation is to be straight-line

- Assume the project can be financed at 12% (before-tax) using debt

- Tax Rate is 40%

Question:

Suppose your after-tax OCF is $900000. What is the IRR?

A) 21%-22% B) 23%-24% C) <21% D) 22%-23% E) >24%

What is the IRR before tax?

A) >34% B) <32% C) $0 D) 34% E) 32%