you will be analyzing the investment choices presented on the first day of class. You will use proforma+EC.xlsx to solve all exam questions. We assume that an investor, Lisa, purchased 18512 Spicer Lake Ct, Reno, NV in July 2014. Lisa built a discounted cash flow proforma to estimate her cash flows over an 8-year period. Lisa consulted many local real estate professionals to determine appropriate assumptions for a monthly rent rate, vacancy rates, and a series of other expenses. 18512 Spicer Lake Ct, Reno, NV was Lisas first investment property, and she was overwhelmed by the buying, selling, and maintenance processes, so she did not deviate from the projections that he created in her proforma. We know that Lisa sold her investment property for $554,000 in July 2022, however, Lisa received offers to sell the property in 2017 and 2019. Lisa didnt entertain these offers because she did not have a plan for managing her cash flow from the sale of her property. Looking back, Lisa thinks she might have achieved higher returns if she sold her investment property and invested her gains into the QQQ ETF. You will use the assumptions listed below, to complete the proforma and answer questions 1-17. Please answer the following questions and enter your results into the online scantron on Canvas before 12/19 at 4:30pm. You will have one attempt. You will first need to solve for a baseline ATIRR for question 1, then the remaining questions ask you to change your inputs/assumptions to see how each assumption affects NPV and ATIRR. Assumptions: Purchase Price= $265,000 Monthly rent= $2,800 Rent growth rate= 3% Vacancy rate= 10% (of PGI) Opex= 30% (of EGI) Capex= 5% (of EGI) Buying costs= 2% Selling costs= 3% Capital gains tax rate= 20% Depreciation recapture tax rate= 25% Your ordinary income tax rate= 24% LTV ratio= 80% Annual interest on loan= 5% Holding period= 8 years Annual miscellaneous income= $0 MI growth rate= 0% Length of loan= 30 years Depreciation of residential property= 27.5 years Percent of purchase that is land= 10% 2022 sales price= $554,000 2019 offer price= $510,000 2017 offer price= $460,000

Question 12

Instead of selling the property after year 3, Lisa could have considered renovating the house so she could charge higher rents. If Lisa renovated the house after year 3 for $20,000, she believes her after-tax cash flow in year 4 would be $7,000 and would grow at 5% annually (instead of 3% without the renovation). The ATER in year 8 would be $300,000. What is Lisas incremental IRR for renovating the property after year 3?

A) -25.32 B) 40.13% C) -40.13% D) 28.62%