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: 50

Average Rent: $1,250 per unit per month

Expected Annual Rent Growth: 3% per year

Vacancy and Collection Losses: 5% of Potential Gross Income

Other Income: $15 per unit per month

Expected Growth in Other Income: 2% per year

Operating Expenses: 40% of Effective Gross Income

Capital Expenditures: 5% of Effective Gross Income

Selling Expenses: 3% of Future Selling Price

Going-Out Cap Rate: 5.5%

Value of Improvements: $5 million

Marginal Tax Rate: 30%

Capital Gains Tax Rate: 15%

Expected Purchase Price: $7.5 million

Loan Terms: Loan Amount: 80% of purchase price / Interest Rate: 5% per year with monthly payments and monthly compounding / Amortization Term: 30 years

a. What is the IRR of the before-tax unlevered cash flows if the before-tax discount rate is 12%?

b. What is the NPV of the before-tax levered cash flows?