The following information refers to a two-unit apartment building that is available for purchase.

1. Calculate the three-year cash flow projection by filling in the blanks below. Also calculate and fill-in the following ratios as indicated In table A (25 points)

1. Equity Dividend Rate
2. Debt Yield Ratio
3. Debt Coverage Ratio
4. Should the investor undertake the project? Evaluate/discuss the rational grounds for your judgment by computing (15 points)
5. NPV
6. IRR

Very briefly discuss your solutions below.

PROJECT DATA

Rent: $800 per unit/month; rises at 4% per year; Vacancy =10%/yr

Purchase Price: $84,000 ; Land Value = 25% of Property value Financing: LTV= 80%, Interest =6%, 15 years, monthly payments Holding period: 3 years (January 2009 through Dec. 2011) Selling price (End of yr.3)= $12se : 3% Investors req. return= 16%; Operating Expenses = 50% of PGI Show your computation for:

PG.

PGI (yeAnnual Debt Servicea:

1B (10 points)

Should the investor buy this property? What would be his Net Present Value to Equity and Internal Rate of Return to Equity Position? Discuss your computations below.

TABLE A Cash Flow Projection Year: One Two Three Potential Gross Income (PGI) Vacancy/Collect Losses (VCL) Effective Gross Income (EGI) | -Operating Exp. CapEx. Net Operating Income (NOI) -Annual Debt Service Before Tax Cash Flow (BTCF) Before Tax Equity Reversion** Total CashFlow year t(t=1,2,3) X PVF16% Pres. Value CFD Equity Dividend Rate Debt Coverage Ratio Debt Yield Ratio na = Not Applicable ** From table B below Table B: Reversion (Terminal Cash Flow Before Tax) Sales Price Selling Exp. (@ 3% of Sales Price) Net Sales Price - Mortgage Balance (EOY 3) Before Tax Equity Reversion (BTER) Table C: Data for Computation of Evaluation Criteria in 6b Year: One Two Three BTCFt BTER Total Cash Flo X PVF16% PV[Total Cash Flow] PV[BICE,BTERS] Equity Investmt NPVE IRRE TABLE A Cash Flow Projection Year: One Two Three Potential Gross Income (PGI) Vacancy/Collect Losses (VCL) Effective Gross Income (EGI) | -Operating Exp. CapEx. Net Operating Income (NOI) -Annual Debt Service Before Tax Cash Flow (BTCF) Before Tax Equity Reversion** Total CashFlow year t(t=1,2,3) X PVF16% Pres. Value CFD Equity Dividend Rate Debt Coverage Ratio Debt Yield Ratio na = Not Applicable ** From table B below Table B: Reversion (Terminal Cash Flow Before Tax) Sales Price Selling Exp. (@ 3% of Sales Price) Net Sales Price - Mortgage Balance (EOY 3) Before Tax Equity Reversion (BTER) Table C: Data for Computation of Evaluation Criteria in 6b Year: One Two Three BTCFt BTER Total Cash Flo X PVF16% PV[Total Cash Flow] PV[BICE,BTERS] Equity Investmt NPVE IRRE