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In: Finance

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. 1 $103,085

  2. 2 $108,361

  3. 3 $113,875

  4. 4 $119,636

  5. 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%

  1. a) Calculate the NPV of this project assuming that you do not take any mortgages

  2. 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 2 years ago
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