In: Accounting
You are considering investing in a project that requires an up-front investment of $1,100,000 and is expected to produce NOI for the four year holding period as follows: Year 1: $81,000, Year 2: $96,000, Year 3: $104,000, Year 4: $113,000. Also, at the end of the fourth year, the property can be sold for $1,250,000. Selling expenses will be 5 percent. You plan to finance 70 percent of the up-front investment with a 15 year loan at 7 percent interest with monthly payments. Up-front financing costs will be 4 percent of the loan amount. a) What is the loan amount? b) What is the annual debt service on the loan (monthly payment x 12)? c) What is the levered required initial equity investment? d) Calculate the before-tax cash flow (BTCF) for years 1-4. e) After four years, the balance of the loan will be $635,880. What is the before-tax equity reversion (BTER)? f) Calculate the net present value (NPV) of the levered investment, assuming a required return on levered equity of 13%.?