You are looking to purchase your first apartment complex that costs $$2$ million and you estimate will

produce a constant $$100,000$ per year in NOI until you sell the property in $10$ years and receive $$3$ million

in net sale proceeds. Purdue Federal Credit Union has offered you two different interest$-$only loans with

annual payments and no origination finance the acquisition subject to underwriting conditions.

Option A: $5\mathrm{.}0\%$ with a DCR $135\%$

Option B: $5\mathrm{.}5\%$ with a DCR $120\%$

A$.$ What is the unlevered or property$-$specific IRR?

B$.$ What is the maximum loan amount and levered IRR if you select Option A$?$

C$.$ What is the maximum loan amount and levered IRR if you select Option B$?$

D$.$ What is the incremental borrowing cost of the loans association with Option A or Option B$,$ and

which option should you select if your uncle is willing to instead partner with you and provide

equity at a $10\%$ preferred rate $($ie$,$ this is your opportunity cost of equity$).$