Compute the npv and irr on properties

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Reference no: EM1368353

You are an analyst at a REIT and have been asked to make a recommendation if the company should invest in the following three properties.

Apartment Complex

Purchase Price
$19 million
NOI Year 1
$1.9 million
NOI Year 2
$2 million
NOI Year 3
$2.1 million
NOI Year 4
$2.2 million
NOI Year 5
$2 million
Net Reversion
$22 million

Shopping Center

Purchase Price
$14 million
NOI Year 1
$1.4 million
NOI Year 2
$1.5 million
NOI Year 3
$1.7 million
NOI Year 4
$1.6 million
NOI Year 5
$1.8 million
Net Reversion
$18million

Flex Building

Purchase Price
$10 million
NOI Year 1
$900,000
NOI Year 2
$1.2 million
NOI Year 3
$1.4 million
NOI Year 4
$1.5 million
NOI Year 5
$1.6 million
Net Reversion
$14 million

Calculate the NPV and IRR on each of these properties individually and collectively assuming a discount rate of 15 percent. Which property/properties do you recommend purchasing?

Next assume you can arrange financing based on an equity position of 33.3 percent with an interest rate of 6.5 percent for 25 years. Now calculate the leveraged NPV and IRR for each property also assuming a 15 percent discount rate. Also assume a 28 percent income tax bracket, 20 percent long term capital gains tax rate and a recapture rate of 25 percent. Further assume the land value is 20 percent of the property value. Calculate the NPV and IRR on each of these properties individually and collectively assuming a discount rate of 15 percent. Which property/properties do you recommend purchasing?

Reference no: EM1368353

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