What is the npv of the project

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Question - Claire Deininger, CAIA has purchased an apartment complex and is calculating the investment value (IV) of the project. Assume that U.S. Treasury notes are yielding 1%, the liquidity premium is 1.5% per year, and the required risk premium for this particular real estate project is 3.25% per year. Below are the Deininger's financial estimates for the apartment complex. The net sales proceeds in year 4 are estimated at $650,000.


Year 1

Year 2

Year 3

Year 4

Potential gross Income

150,000

155,000

160,000

165,000

Vacancy loss

-10,000

-10,000

-10,000

-10,000

Effective gross income

140,000

145,000

150,000

155,000

Operating expenses

-55,000

-60,000

-65,000

-70,000

Net operating income

85,000

85,000

85,000

85,000

Required - What is the NPV of the project?

A. $655,813

B. $728,597

C. $779,597

D. $815,975

Reference no: EM133185482

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