You are planing to purchase a Building leased to the Federal Government for a price of $2,600,000. Government's lease has 5 years remaining before it expires. The government has already announced that based on their needs, they will not renew their lease at the end of their lease term. Their rent Is Triple Net, with a flat $275,000 per annum for all the remaining years, which is therefore your NOI. At the end of the lease term, you will have a vacant building. Your plan is to sell the building at the end of the five years. Your forecast sales price with related probabilities as follows: Pessimistic Case: $1,800,000 - 20%, Base Case: $2,100,000 - 55% and Up-Side Case: $2,450,000 25%.

You are financing the acquisition of the buiidng with a $1,600,000 loan, 25 year amortization, 6.5% interest rate. You are told by your accountant that you can allocate 90% of the purchase price to the buidling which can be depreciated over 27.5 years. Selling expenses are expected to be 2.5% of the sale price. Taxes are 33%, 25% and 20% for ordinary income, recapture and capital gains taxes, respectively. You have unlimited operating profits and unlimited capital gains elsewhere against which you can offset any passive activity loses from this property. Assume passive activity operating losses offset operating profits at the ordinary income tax rate and that passive activity capital losses offset capital gains elsewhere at the recapture tax rate.

What is your expected BTIRR and ATIRR on a leveraged basis?

What is the Standard Deviation of these returns?

What is the approximate probability that the before tax Irr will be greater than 3.5%

Assuming Normanl Distribution, what is the approximate probablity your BTIRR will be exactly 3.55%

On a before tax basis, what portion of the Building's Value in the Base Case is coming from its lease to the Federal Government?

On a before tax basis, what portion of the Building's Value in the Base Case is coming from the Residual Value?

The undersigned hereby certifies by signing below that all the answers and supporting calculations provided herein are in fact his or her own original work product derived without input from or consultation with others.