In Los Angeles, you are considering the purchase of a 47,000-SF office building, of which 70% is leasable. You negotiate a purchase price of $7.5 million with the seller. In year 1, you expect to earn $25 annual rent per SF. You project that this number will grow by 5% every year. The average vacancy rate in the market is currently 3%, but you expect it to increase 50 bps per year. You expect it to cost $350,000 to operate the building, and that too will grow by 5% per year. But you will require your tenants to pay 50% of those expenses. You plan to spend $500,000 in renovations in the first year, and then you will set aside $50,000 every year thereafter for future renovations. You will also need to set aside 10% of EGI for annual leasing costs. The property will be sold at the end of year 6, and you will pay 7% of the price in selling expenses. Between now and then, you expect the property to appreciate at a 8% CAGR. You want to earn a 12% IRR annually. You build a pro forma to answer the following questions. A. Using this purchase price as the property value, what is the cap rate in year 1? How does this compare to cap rates for other similar properties, according to CBRE data? B. What is the PBTCF for each year? C. What is the periodic return for the entire 5-year holding period if all cash flows are reinvested at the discount rate? D. What is the periodic return for the entire 5-year holding period if the cash flows are not reinvestedand instead are simply added to the final balance? E. What purchase price should you pay to earn your desired IRR?