Find IRR on new potential loan option and subtract IRR

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You own an office building you believe to be currently worth $10,000,000. The projected NOI next year is $500,000 and the NOI growth rate will be 2%. The going in cap rate and the terminal cap rate are both 8%. You have a 80% debt financing. Your required rate of return is 10%. You plan to hold the property for 5 more years. Currently you have an interest only loan with a 8% rate. A different lender offers to refinance your loan at 6.5%, but you must pay fees equal to 2% of the loan balance in order to get this loan. What is the difference in project IRRs in these two financing options, all else equal. Hint: find IRR on new potential loan option and subtract IRR using current financing option. (State your answer as a percentage, rounded to 2 decimal places. For example, if your answer is twelve and three quarters, enter 12.75.)

Reference no: EM131561378

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