Use the information provided below to estimate the market value of the office building that has been described.

Type of Property: Office Building

Leasable Space: 100,000 square feet

Average Rent: $20.00 per square foot per year

Expected Rent Growth: 4.50% per year

Vacancy and Collection Losses: 15.00% of potential gross income

Other Income: $1.50 per square foot per year

Expected Growth in Other Income: 3.00% per year

Operating Expenses: 27.50% of effective gross income

Capital Expenditures: 2.50% of effective gross income

Going-In Cap Rate: 5.50%

Going-Out Cap Rate: 6.25%

Selling Expenses: 4.00% of future selling price

Discount Rate: 6.75%

Please show all computations:

A. What is the market value of this property according to the discounted cash flow approach? Assume that you are going to sell the property at the end of the 5th year of ownership.

i. Estimate the NOI for the holding period (each year individually).

ii. Estimate the terminal value. iii. Use the appropriate discount rate to arrive at the NPV.