Problem 1

Ace Investment Company is considering the purchase of the Apartment Arms project. Next year's NOI and cash flow is expected to be $1,850,000, and based on Ace's economic forecast, market supply and demand and vacancy levels appear to be in balance. As a result, NOI should increase at 3 percent each year for the foreseeable future. Ace believes that it should earn at least a 13 percent return on its investment.

1. Assuming the above facts, what would the estimated value for the property be now?

2. Assuming the required return changes to 11 percent, what would the value be now?