An investor is considering the purchase of a small office building. The NOI is expected to be the following: year 1, $200,000; year 2, $210,000; year 3, $220,000; year 4, $230,000; year 5, $240,000. The property will be sold at the end of year 5 and the investor believes that the property value should have appreciated at a rate of 3 percent per year during the five-year period. The investor plans to pay all cash for the property and wants to earn a 10 percent return on investment (IRR) compounded annually.

a. What should be the property value (REV) at the end of year 5?

b. What should be the present value of the property today?

c. How can the value at the end of year 5 be estimated today if the present value today is unknown?

d. Based on your answer in (b), if the building could be reproduced for $2,300,000 today, what would be the underlying value of the land?