You are considering the purchase of an office building. You have gathered information, surveyed the market, and made predictions. Assume you plan to purchase the property on January 1, 2016 and sell the property on December 31, 2020. Other assumptions:

Total acquisition price: $999,000

Property consists of 10 office suites, 5 on the first floor and 5 on the second.

Contract rents: 5 suites at $1,799 per month and 5 at $1,499 per month.

Annual market rent increases: 3.99% per year (first increase on 01/01/2017)

Vacancy and collection losses: 8.99% per year

Operating expenses: 7.99% of effective gross income each year

Expected holding period: 5 years

Property value is expected to increase 5.5% per year.

Selling expenses are expected to be 6.99% of selling price.

Loan information: 75% LTV, 6.99%, 30 years

Up-front financing costs: 2.99% of loan amount

Depreciation: 85% of the acquisition price

Ordinary income tax rate: 30%

Capital gain tax rate: 15%

Depreciation recapture rate: 25%

1. What is the Equity Investment?

a. $999,000.00

b. $249,750.00

c. $272,152.58

d. $227,347.43

e. None of the above, the answer is:

2. What is the total depreciation expected to be during this 5-year investment?

a. $154,390.91

b. $151,817.73

c. $108,865.38

d. $107,050.86

e. None of the above, the answer is:

3. What is the expected NOI in year 2?

a. $187,276.20

b. $108,620.20

c. $93,656.83

d. $90,063.30

e. None of the above, the answer is:

4. What is the expected Net Sales Price?

a. $1,305,653.05

b. $1,214,387.90

c. $1,184,691.62

d. $980,274.25

e. None of the above, the answer is:

5. What is the before tax cash flow for year 1?

a. $197,880.00

b. $180,090.59

c. $90,063.30

d. $30,306.30

e. None of the above, the answer is:

For questions 6-8, use the following information regarding a potential investment in an apartment complex:

EI = -250,000

ATCF 1 = 21,875

ATCF 2 = 23,987

ATCF 3 = 24,682

ATCF 4 = 25,997

ATCF 5 = 30,888

ATER = 272,190

6. What is the NPV of this investment if your required rate of return is 15%?

a. $48,715.91

b. $31,064.63

c. -$31,064.63

d. -$.48,715.91

e. None of the above, the answer is:

7. What is the IRR of this investment?

a. 11.44%

b. 9.89%

c. -9.89%

d. -11.44%

e. None of the above, the answer is:

8. Given your expectations, what should you do?

a. Invest, because the NPV is less than the cost

b. Invest, because the NPV is positive

c. Not Invest, because the IRR is negative

d. Not Invest, because the IRR is less than the NPV

e. None of the above, the answer is: