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The buildings in a certain warehouse market are characterized by net cash flow projections like the one shown in the following table, based on

 

The buildings in a certain warehouse market are characterized by net cash flow projections like the one shown in the following table, based on net leases of five years' duration. In this market, properties are typically evaluated using a going-in IRR of 10% (blended rate). You have the opportunity to purchase a property with these same typical cash flow projections at the typical going-in IRR. However, your building is entirely covered by a 10-year lease with a AAA credit tenant who can borrow money at 5%. Assuming that the appropriate inter-lease and resale discount rate is 13%, what is your NPV from this deal? Ten-year cash flow (millions) Year 1: 1 Year 2: 1 Year 3: 1.1 Year 4: 1.1 Year 5: 1.2 Year 6: 1.2 Year 7: 1.3 Year 8: 1.3 Year 9: 1.4 Year 10: 15.4 (1.4 net cash flow+14 resale)

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