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

• The purchase price is $2,000,000.
• Potential gross income (PGI) for the first year is projected to be $300,000.
• PGI is expected to increase at 4.00% per year. No vacancies are expected.
• Operating expenses are estimated at 35% of effective gross income every year.
• The asset is expected to sell at an Exit Cap Rate of 15.00% and with 4.00% in selling expenses.
• The holding period is 10 years.
• The unlevered rate of return is 5.00%.
• The required levered rate of return is 10.00%.
• 70% of the acquisition price can be borrowed with a 30-year mortgage at an 8.00% fixed rate.
• The lender will charge you 2.00% of the loan amount, which you will pay out-of-pocket at closing.
• The loan has a prepayment penalty based on a schedule of 5/4/3/2/1% each year, which re-sets every 5 years.

1. Calculate the unlevered NPV and IRR of this investment. Should you invest?
2. Calculate the levered NPV and IRR of this investment. Should you invest?