Question

ONLY COMPLETE USING EXCEL SHOWING WORK - THANK YOU! An office building is purchased with the...

ONLY COMPLETE USING EXCEL SHOWING WORK - THANK YOU!

An office building is purchased with the following projected cash flows:

• NOI is expected to be $130,000 in year 1 with 5 percent annual increases.

• The purchase price of the property is $720,000.

• 100 percent equity financing is used to purchase the property.

• The property is sold at the end of year 4 for $860,000 with selling costs of 4 percent.

• The required unlevered rate of return is 14 percent.

a. Calculate the unlevered internal rate of return (IRR).

b. Calculate the unlevered net present value (NPV).

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Answer #1

Year

0

1

2

3

4

cost of machine

-720000

NOI - with 5% increase

130000

136500

143325

150491.3

selling price of building after selling cost of 4%

825600

total cash flow

-720000

130000

136500

143325

976091.3

Sum of present value of cash flow = total cash flow/(1+r)^n r = 14%

-720000

114035.1

105032.3

96740.29

577924.4

NPV = sum of present value of cash flow

173732.1

IRR = using irr function in ms excel =irr(-720000,130000,136500,143325,976091.3

21.88%
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