Questions:

Q27. \"A\" plans to purchase a property for 9 million entirely with equity. He budgets an additional $3 million for renovations and 600,000 for lease up costs. Assume that both these additional costs (renovation and lease up) are incurred at the time of the purchase so that they are added on to the purchase price. The investment amount is therefore $22.6 million. \"A\" expects to hold the property for 8 years and during this period he expects to receive the following cash flows, at the end of each year: $3.1 million in Year 1; $3.2 million in Year 2; $3.4 million in Year.3; $3.7 million in Year 4; $3.8 million in Year 5; $4.1 million in Year 6; $4.2 million in Year 7; and $4.5 million in year 8. \"A\" expects that he would be able to sell the property at the end of Year 8 for $35 million. At the time of sale, he will incur transaction costs equal to 5.5% of the total sale price. The purchase of the property is funded entirely with equity. Ignore depreciation and taxes. What is A's expected IRR from this investment? (a) 13.7% (b) 16.7% (c) 17.2% (d) 18.8% Q28. In question 27 above, what is the NPV of the investment if A's cost of equity capital is 11%? (a) $10,488,236 (b) $13,057,262 (0) $10,450,623 (d) $13,876,325 Q29. Assume that \"A\" acquires a property for $18.0 million with a 60% LTV (loan-to-value) mortgage. The property generates approximately $890,000 in N01 (Net Operating Income) and the annual debt service on the interest-only mortgage for \"A\" is approximately $370,000. There are no other items impacting cash ows. The cash-on-cash yield from A's investment in this property is: (a) 8.24% (b) 7.22% (c) 4.81% (d) 2.89% Q30. Landlord \"A\" has offered XYZ Company (the tenant) a lease in its building at $45 per SF per year beginning from the third year of the 12-year lease term, as part of this deal \"A\" has also confirmed that (a) XYZ would enjoy free relit during the first two years, and (b) the annual rent payable by XYZ would increase by 5% per year from year 3 to year 12. Although, \"A\" did not disclose this to XYZ, he had priced the lease tem1s based on an annual average expected return from this lease (during the 12 years) of 10%. After considering A's offer, XYZ reverted back to \"A\" asking him to modify the offer to set the rent to be at (i.e., rent does not change from year to year) for the full 12-year term and has also indicated that if such a proposal were to be forthcoming, XYZ would forego the offer of free rent during the first two years of the 12-year lease. What rent level (per SF per year should \"A\" propose to offer to XYZ for each of the 12 years of the lease? (a) $27.67 (b) $35.12 (0) $40.61 (d) $45.00