ABC Fund has decided to enter into a joint venture with Newtown Development Inc. to develop and operate an office building that will require an initial investment of $100 million to cover all the development costs (hard and soft costs). There will be no debt financing for the joint venture. Each party invests its capital at the beginning of the first year and cash flow from operations is projected as follows:

Year 1 ............................................. $ 2,000,000
Year 2 .............................................    4,000,000
Year 3 .............................................    9,000,000
Year 4 .............................................  12,000,000
Year 5 .............................................  14,000,000

It is expected that the property will be sold at the end of year 5 for $150 million. ABC Fund will invest $45 million and Newtown Development Inc. will invest the remaining $55 million needed for the development costs. The $50 million development costs already include a developer fee to Newtown Development Inc. and the cash flow projections for each year above are net of a property management fee being paid to Newtown Development Inc. ABC Fund will receive a 5 percent operating return that is noncumulative. That is, any shortfall is not carried over to the next year but is paid before Newtown Development Inc. receives any cash from operations. After ABC Fund is paid its preferred return, Newtown Development Inc. will receive a 5 percent operating return on its contributed capital. This is also noncumulative. Any remaining cash flow from operations is split 50–50 to each party. When the property is sold, proceeds from sale will be distributed as follows:

First, repay the initial capital investment by ABC Fund.

Next, repay the initial capital investment by Newtown Development Inc.

Next, pay ABC Fund an 11 percent IRR preference on its investment.

Thereafter, split all proceeds 50–50.

Use the above assumptions to calculate the cash flows that each party will receive and its expected IRR.