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:30 Average Rent:$1,500 per unit per month Expected Annual Rent Growth: 5% per year Vacancy and Collection Losses: 5% of Potential Gross Income Other Income:$50 per unit per month Expected Growth in Other Income: 3% per year Operating Expenses:35% of Effective Gross Income Capital Expenditures:4% of Effective Gross Income Selling Expenses:5% 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 fiveyear holding period and a before-tax discount rate of 12%? b. What is the internal rate of return of the before-tax levered cash flows if you still assume a five-year holding period?