Mahomes Vintage Properties (MVP) is analyzing an office property in Kansas City. The property is expected to generate first-year NOI of $1,200,000 and this figure is expected to grow by 2.0 percent for the foreseeable future. The proposed purchase price is $16,000,000, and MVP will incur $150,000 in due diligence (acquisition) costs if it purchases the property. If MVP purchases this property, it will put it into service on January 1 next year. After 8 years (December 31 sale date), MVP expects to sell the property based on a terminal cap rate of 7.5 percent; it will incur sale costs equal to 5.0 percent of the sale price at that time. Financing is available with a 12-year balloon loan at 5.25 percent interest amortized over 20 years. The lender's maximum loan-to-value (LTV) ratio is 70 percent, and its minimum debt-coverage ratio (DCR) is 1.3. It will charge 1.5 points in conjunction with this loan. The tax assessor currently values the property at $12,000,000, $2,400,000 of which is attributable to the land. A recent private appraisal values the property at $15,000,000, $1,500,000 of which is attributable to the land. MVP is in the 30 percent tax bracket for ordinary income; the long-term capital gains tax rate is 15 percent and the depreciation recapture rate is 25 percent. MVP requires a 14.0 percent after-tax return on its investments. On your scratch paper: 1. Calculate the up-front cash flows required to purchase the property. 2. Calculate the after-tax cash flows from operations for the FIRST YEAR ONLY. 3. Calculate the after-tax equity reversion MPV expects to receive at the end of the its holding period. Assuming the after-tax cash flows from operations will be $200,000 in years 2 through 5 and $240,000 in years 6 through 8, calculate the net present value (NPV) and internal rate of return (IRR) of this investment over a 8-year holding period and indicate whether MVP should purchase this property. On your scratch paper, make sure you explain your reasoning. NPV = IRR = Should MVP purchase this property (Yes or No): You must also show all your work on your scratch paper for credit. Mahomes Vintage Properties (MVP) is analyzing an office property in Kansas City. The property is expected to generate first-year NOI of $1,200,000 and this figure is expected to grow by 2.0 percent for the foreseeable future. The proposed purchase price is $16,000,000, and MVP will incur $150,000 in due diligence (acquisition) costs if it purchases the property. If MVP purchases this property, it will put it into service on January 1 next year. After 8 years (December 31 sale date), MVP expects to sell the property based on a terminal cap rate of 7.5 percent; it will incur sale costs equal to 5.0 percent of the sale price at that time. Financing is available with a 12-year balloon loan at 5.25 percent interest amortized over 20 years. The lender's maximum loan-to-value (LTV) ratio is 70 percent, and its minimum debt-coverage ratio (DCR) is 1.3. It will charge 1.5 points in conjunction with this loan. The tax assessor currently values the property at $12,000,000, $2,400,000 of which is attributable to the land. A recent private appraisal values the property at $15,000,000, $1,500,000 of which is attributable to the land. MVP is in the 30 percent tax bracket for ordinary income; the long-term capital gains tax rate is 15 percent and the depreciation recapture rate is 25 percent. MVP requires a 14.0 percent after-tax return on its investments. On your scratch paper: 1. Calculate the up-front cash flows required to purchase the property. 2. Calculate the after-tax cash flows from operations for the FIRST YEAR ONLY. 3. Calculate the after-tax equity reversion MPV expects to receive at the end of the its holding period. Assuming the after-tax cash flows from operations will be $200,000 in years 2 through 5 and $240,000 in years 6 through 8, calculate the net present value (NPV) and internal rate of return (IRR) of this investment over a 8-year holding period and indicate whether MVP should purchase this property. On your scratch paper, make sure you explain your reasoning. NPV = IRR = Should MVP purchase this property (Yes or No): You must also show all your work on your scratch paper for credit