V. Calculate the IRR if both operating cost and gross revenue the (5 marks) PA8 Question 3 A developer is planning to construct an apartment complex for renting. The complex is estimated to be 2,000 square metres. The land is estimated to cost $20 million and construction cost including professional fees is estimated to be $50,000 per square metre. The expected life of the buildings is 40 years but the objective is to rent the complex for five years and then sell it in the 6th year. Annual rental income is estimated to be $12,000 per square metre per annum. It is estimated that in the sixth year when the complex is being sold, the price will be $35,000 per square metre. Annual maintenance and insurance cost through a property management company is estimated to be 15% of rental income. An average occupancy rate of 95% is assumed. The real discount rate is 8%. (a) Calculate the NPV for the developer. (15 marks) (b) Calculate the IRR. (10 marks) (c) Bazel purchased one of the units at the start of year 6 for $10 M when the units were being sold. He rents it for the prevailing average rental rate of $40,000 per month for the first year. He pays insurance of $75,000 per annum, maintenance of $5,000 per month and property tax of $20,000 per annum. Calculate the payback period for Bazel's investment. (10 marks) (d) Calculate Bazel rate of return on his investment (ROI) in the first year. (10 marks) (e) Inflation for the first year was 5%. Calculate Bazel's real rate of return on his investment at the end of the first year. (5 marks) Should Basel have purchased the unit? (2 marks) The End V. Calculate the IRR if both operating cost and gross revenue the (5 marks) PA8 Question 3 A developer is planning to construct an apartment complex for renting. The complex is estimated to be 2,000 square metres. The land is estimated to cost $20 million and construction cost including professional fees is estimated to be $50,000 per square metre. The expected life of the buildings is 40 years but the objective is to rent the complex for five years and then sell it in the 6th year. Annual rental income is estimated to be $12,000 per square metre per annum. It is estimated that in the sixth year when the complex is being sold, the price will be $35,000 per square metre. Annual maintenance and insurance cost through a property management company is estimated to be 15% of rental income. An average occupancy rate of 95% is assumed. The real discount rate is 8%. (a) Calculate the NPV for the developer. (15 marks) (b) Calculate the IRR. (10 marks) (c) Bazel purchased one of the units at the start of year 6 for $10 M when the units were being sold. He rents it for the prevailing average rental rate of $40,000 per month for the first year. He pays insurance of $75,000 per annum, maintenance of $5,000 per month and property tax of $20,000 per annum. Calculate the payback period for Bazel's investment. (10 marks) (d) Calculate Bazel rate of return on his investment (ROI) in the first year. (10 marks) (e) Inflation for the first year was 5%. Calculate Bazel's real rate of return on his investment at the end of the first year. (5 marks) Should Basel have purchased the unit? (2 marks) The End