1. The asking price for the property is $1,000,000; rents are estimated at $90,000 during the first year and are expected to grow at 4 percent per year. Vacancies and collection losses are expected to be 10% of rents. Operating expenses will be 35 percent of effective gross income. A 10-year FRM (fixed rate mortgage) loan for 75 percent of the purchase price can be obtained at 10 percent interest rate. The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold.

1. Write down the cash flows statement for years 1 through 5.
2. What is the expected before-tax internal rate of return? Show your work.
3. Re-do parts a. and b. with no borrowing (100% cash purchase).
4. What is the impact of leverage on the IRR?