Inputs:

Loan to Value RaTo =

0.65

Land to Value RaTo =

0.30

Depreciable Life =

25

years

Mortgage Interest =

5%

Interest Only Loan

Re =

9%

Going Out Cap Rate =

8.2%

Income ax Rate =

35%

Capital Gains ax Rate =

25%

Year 0:

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Year 6:

Building Purchase

$670,000

NOI

$48,000

$52,000

$55,000

$57,000

$60,000

$61,000

$62,500

DS

BCF

axes

ACF

(1) QuesTons:

a) How much Is the Going In Cap Rate?

b) How much is the Gross Sale Price?

c) How much is the NPV for the equity investor?

d) How much is the IRR for the building?

e) Does this investment have favorable leverage?

f) Would an investor invest in this project? Explain.