XYZ Property decides to buy an office building in Seattle for $150 million. The company has an internal required rate or return of 10%. Rental revenues for the first year of operation are projected to be $8 million. Operating expenses are expected to be 3 million in the first year and grow at 3% thereafter. In addition to operating expenses, property maintenance expenses are projected to be $250,000 in the first year and is expected to grow at 3% per year. Rent in Seattle is very cyclical and has sagged for the last few years. With economic growth returning, it is projected that rents will rise significantly before flattening out in later years ( see revenue growth expectations below). At the end of ten years, the company expects to be able to sell the asset for $275 million.

Growth Assumptions
Year	2	3	4	5	6	7	8	9	10
Rent Revenue Growth	10%	20%	25%	30%	20%	0%	-5%	-5%	-5%
Expense Growth	3%	3%	3%	3%	3%	3%	3%	3%	3%

A)	Is this purchase good for XYZ? Using discounted cash flow model, calculate the IRR and NPV of the investment to help explain your answer.

After 5 years, XYZ received an unsolicited offer on the building for $200 million. The company is strapped for cash and needs some liquidity to pay off its creditors.
B)	Should XYZ accept the offer? Use a DCF model to explain your answer.