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You are considering the acquisition of a small office building. The purchase price is $ 7 7 5 , 0 0 0 . Seventy -

You are considering the acquisition of a small office building. The purchase price is $775,000. Seventy-five percent of the purchase price can be borrowed with a 30-year, 7.5 percent mortgage. Payments will be made annually. Up front financing costs will total 3 percent of the loan amount. The expected before-tax cash flows from operations, assuming a five-year holding period, are as follows:YearBTCF1$ 48,492253,768359,282465,043571,058The before-tax cash flow from the sale of the property at the end of 5 years is expected to be $295,050.Required:aWhat is the net present value of this levered investment, assuming a 12 percent required rate of return on levered cash flows?bWhat is the levered internal rate of return on equity?

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