Zenith investment Company is considering the purchase of an office property. It has done an extensive market analysis and has estimated that based on current market supply or demand relationships, rents, and its estimate of operating expenses, annual NO/ will be as follows: A market that is currently oversupplied is expected to result in cash flows remaining flat for the next three years at $1,240,000. During years 4,5 , and 6 , market rents are expected to be higher it is further expected that beginning in year 7 and every year thereaftet, NO/ will tend to reflect a stable, balanced market and should grow at 3 percent per year indefinitely. Zenith betieves that investors should earn a 12 percent return (i) on an investment of this kind Required: a. Assuming that the investment is expected to produce NO/ in years 1 to 8 and is expected to be owned for seven years and then sold, what would be the value for this property today? (Hint Begin by estimating the reversion value at the end of year 7 Recall that the expected IRP=12% and the growth rate (g) in year 8 and beyond is estimated to remain level at 3% ) b What would the terminal capitalization rate (RT) be at the end of year 7 ? c. What would the going-in capitalization rate ( ( ) be based on year 1 NOP? Complete this question by entering your answers in the tabs below. Assuming that the investment is expected to produce NOI in years 1 to 8 and is expected to be owned for seven years and then sold, what would be the value for this property today? (Hint: Begin by estimating the reversion value at the end of year 7. Recall that the expected IRP=12% and the growth rate (g) in year 8 and beyond is estimated to remain lexel at 3% ) (Do not round intermed late catcutations. Round your flnal answer to nearest whole dollar amount.) Required: a. Assuming that the investment is expected to produce NO/ in years 1 to 8 and is expected to be owned for seven years and then sold, what would be the value for this property today? (Hint Begin by estimating the reversion value at the end of year 7 . Recall that the expected IRP=12% and the growth rate (g) in year 8 and beyond is estimated to remain level at 3% ) b. What would the teminal capitaization rate (RT) be at the end of year 7 ? c. What would the going-ir capitaization rate (R) be based on year 1 NOP Complete this question by entering your answers in the tabs below. What would the terminal capitalization rate (R+)be at the end of year 7 ? Required: a. Assuming that the investment is expected to produce NOI in years 1 to 8 and is expected to be owned for seven years and then sold, what would be the value for this property today? (Hint Begin by estimating the reversion value at the end of year 7 Recall that the expected IRP=12% and the growth rate (g) in year 8 and beyond is estimated to remain level at 3% ) b. What would the terminal capitalization rate (R7) be at the end of year 7 ? c. What would the going-in capiralization rate (R) be based on year 1 NOR? Complete this question by entering your answers in the tabs below. What would the going in capitalization rate (R) be based on year 1 NOR? (Do not round intermediate calculations: Round your answer to 1 decimal place.)
