Q$1$: An investor is considering the purchase of a small apartment. The NOI is expected to be the

following: Year $1,$ $$214,000$; Year $2,$ $$224,000$; Year $3,$ $$234,000$; Year $4,$ $$244,000$; Year $5,$

$$254,000.$ The property will be sold at the end of year $5$ and the investor believes that the

property value should have appreciated at a rate of $3$ percent per year during the five$-$year

period. The investor plans to pay all cash for the property and wants to earn a $10$ percent

return on investment $(R)$ compounded annually.

Required:

a$.$ What should be the property value $($REV$)$ at the end of year $5$ in order for the investor to earn

the $10\%$ IRR?

b$.$ What should be the present value of the property today?

c$.$ Based on your answer in $($b$),$ if the building could be reproduced for $$2,440,000$ today, what

would be the underlying value of the land?