Question
You are considering the purchase of an apartment complex. Purchase price: $775,000 BTCF: Year NOI 1 $103,085 2 $108,361 3 $113,875 4 $119,636 5
You are considering the purchase of an apartment complex.
• Purchase price: $775,000
•BTCF:
| Year | NOI |
| 1 | $103,085 |
| 2 | $108,361 |
| 3 | $113,875 |
| 4 | $119,636 |
| 5 | $125,651 |
•Holding period is four years
•Cap rate is expected to be 7% in year 4
•Selling expenses will be 5% of the sale price
•The 4-year Treasury bill rate is 3% and your risk premium for this project is 8%
a) Calculate the NPV of this project assuming that you do not take any mortgages
b) You take a $620,000 mortgage. Your annual debt payment is $54,593. The outstanding loan balance at the end of year 4 is $596,558. Calculate the NPV of this project.
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Fundamentals of Investing
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
12th edition
978-0133075403, 133075354, 9780133423938, 133075400, 013342393X, 978-0133075359
