You are considering the purchase of an apartment complex. Purchase price: $775,000 BTCF: Year NOI 1...

You are considering the purchase of an apartment complex.

Purchase price: $775,000
BTCF:

Year NOI

1 $103,085
2 $108,361
3 $113,875
4 $119,636
5 $125,651

Holding period is four years
Cap rate is expected to be 7% in year 4
Selling expenses will be 5% of the sale price
The 4-year Treasury bill rate is 3% and your risk premium for this project is 8%

a) Calculate the NPV of this project assuming that you do not take any mortgages
b) You take a $620,000 mortgage. Your annual debt payment is $54,593. The outstanding loan

balance at the end of year 4 is $596,558. Calculate the NPV of this project.

Solutions

Expert Solution

Cost of Capital = 4 Year Treasury Bill rate + Risk Premium = 3% + 8% = 11%

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jeff jeffy answered 1 year ago

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