You are considering the purchase of an apartment complex. The following assumptions are made:

• The purchase price is $1 million.

• Potential gross income (PGI) for the first year of operations is projected to be $150,000.

• PGI is expected to increase 4 percent per year.

• No vacancies are expected.

• Operating expenses are estimated at 35 percent of effective gross income.

• Ignore capital expenditures.

• The holding period is four years. At the end of year 4, the selling price of this apartment complex is $1.15 million.

• Selling expenses will be 4 percent.

• 80 percent of the acquisition price can be borrowed with a 30-year, monthly payment mortgage.

• The annual interest rate on the mortgage will be 10 percent.

• Financing costs will equal 2 percent of the loan amount.

• There are no prepayment penalties.

• The required levered rate of return is 14 percent.

Answer the following questions:

a, Calculate net operating income (NOI) for each of the four years.

Year 1: $Answer 1

Year 2: $Answer 2

Year 3: $Answer 3

Year 4: $Answer 4

c, Calculate the monthly mortgage payment. What is the total per year?

$Answer 5

d, Calculate the before-tax cash flow (BTCF) for each of the four years.

Year 1: $Answer 6

Year 2: $Answer 7

Year 3: $Answer 8

Year 4: $Answer 9

e, Calculate the before-tax equity reversion (BTER) from the sale of the property.

$Answer 10

f, Calculate the (levered) net present value of this investment.

$Answer 11