Problem 3 An investor is considering the acquisition of a "distressed property" which is on Northlake Bank's REO list. The property is available for $250,000 and the investor estimates that he can borrow $200,000 at 8 percent interest and that the property will require the following total expenditures during the next year: Inspection $ 500 Title search 1,000 Renovation 13,000 Landscaping 800 Loan interest 12,800 Insurance 1,800 Property taxes 6,000 Selling expenses 8,000 a) The investor is wondering what such a property must sell for after one year in order to earn a 20 percent return (IRR) on equity. What other issues must he consider? b) The lender now is concerned that if the property does not sell, he may have to carry the property for one additional year. He believes that he could rent it and realize net cash flow before debt service of $1,200 per month. However, he would have to make an additional $12,800 in interest payments on his loan during that time, and then seit. What would the price have to be at the end of year 2 in order to earn a 20 percent IRR on equity? Expectations *) Calculate the price at which you will make a 20% return on your equity selling one year later. Explain step by step and the logic of each step in your calculation List in the spreadsheet the cash flows month by month and the calculation of the IRR that results In a 20% return on your equily b) Repeat the what you did in part a) for two years incorporating the new information about year 2 trental income for example) List in the spreadsheet the cauflows month by month and the calculation of the IRR that results In a 20% return on your equity