Your market analysis and NOI projections for The Streets of Cranberry, a retail lifestyle center located in Cranberry Township, Pennsylvania, have produced encouraging results (see Homework Assignments 1 and 2). Therefore, you want to finalize your study of this investment opportunity. You decide to look at your NOI projections to develop your financial analysis. A summary of the NOI projections is provided below. To organize your financial analysis, you add new information to your existing modelling assumptions (see Assignment 2): On the basis of this information, you set the following six (6) tasks for yourself: 1. Develop 6-year projections of equity before tax cash flows 2. Estimate the before tax equity reversion from the sale of the property at the end of year 5 3. Compute NPV and IRR of the investment 4. You work with different lenders to arrange a mortgage for the acquisition of the property. The table overleaf provides information about the possible LTV ratios and interest rates those lenders could offer you. The probabilities with which you would be able to negotiate each of the interest rates under the different LTV assumptions are also given in the table. To analyze the sensitivity of the project IRR to your financing choices, you compute the mean IRR and its standard deviation across the different interest rate levels under each of the five LTV assumptions. Based on your financial analysis, which LTV assumption offers the best trade-off between risk and return? Continued overleaf. 6 Year NOI Projection 1 2 3 4 5 6 Calendar Year Ending 6/30/19 6/30/20 6/30/21 6/30/22 6/30/23 6/30/24 Net Operating Income 2,411,129 2,485,631 2,565,152 2,335,764 2,725,200 2,850,866 Assumptions Equity Discount Rate 14.0% Purchase Price 29,000,000 In-Place Cap Rate 8.3% Terminal Cap Rate 9.0% Mortgage Amount 75% LTV Mortgage Term 5 years Amortization Period 25 years Interest Rate 6.0% per year Payment Frequency 12 payments per year Selling Expenses 3.0% of sale price 5. Analyze the sensitivity of the project to different assumptions for the terminal cap rate, using a graph to illustrate your results. How sensitive is the project IRR to variation in that cap rate? 6. Analyze the breakdown of the investment IRR: How much of the IRR is driven by cash flows from operations? How much of it is driven by the disposition