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Use the following cash flow and additional information to answer questions 6-8. We have been asked to value a warehouse in Norfolk. Based on our

Use the following cash flow and additional information to answer questions 6-8.

We have been asked to value a warehouse in Norfolk. Based on our market research, we have developed the following cash flow. Based on the same research, we have determine that should use a 5-year holding period (investment horizon). A reasonable yield rate (aka internal rate of return IRR) is 11%. A reasonable terminal capitalization rate (reversion cap rate rate of return applied to determine the resale) is 9%. There are no deductions for the cost of reselling the property.

Year 1 2 3 4 5 6
PGI $10,000 $10,300 $10,609 $10,927 $11,255 $11,593
Vac & Coll Loss $ (500) $ (515) $ (530) $ (546) $ (563) $ (580)
EGI $9,500 $9,785 $10,079 $10,381 $10,692 $11,013
Expenses $3,800 $3,914 $4,031 $4,152 $4,277 $4,405
NOI $5,700 $5,871 $6,047 $6,229 $6,415 $6,608

What is the assumed vacancy and collection loss as a percentage?

a.

5%

b.

95%

c.

40%

d.

60%

The value of the property at the end of year 5 is $64,722.

True

False

The present value of the property rounded the nearest hundred dollars is $65,800.

True

False

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