Suppose that you are contemplating an investment in an apartment building. Use the information provided below to answer the questions that follow:

Type of Property: Apartment Building

Number of Units: 35

Average Rent: $1,600 per unit per month

Expected Growth in Rents: 5% per year

Vacancy and Collection Losses: 5% of Potential Gross Income

Other Income: $45 per unit per month

Expected Growth in Other Income: 3% per year

Operating Expenses: 35% of Effective Gross Income

Capital Expenditures: 5% of Effective Gross Income

Selling Expenses: 4% of Future Selling Price

Going-Out Cap Rate: 6.5%

Expected Purchase Price: $5.25 million

Loan Terms: Loan Amount: 85% of purchase price Interest Rate: 4.5% per year with monthly payments and monthly compounding Amortization Term: 30 years

a. What is the net present value of the before-tax unlevered cash flows if you assume a five-year holding period and a discount rate of 13%?

b. What is the internal rate of return of the before-tax levered cash flows if you still assume a five-year holding period?