The market where the MOB is located is unstable with extensive tenant churning and lease buyouts occurring regularly.  The truth is our 10% vacancy and collection loss estimate is fairly optimistic due to the perceived stability of current leases.  A more realistic estimate (most likely) is 15% and a worst case (pessimistic) estimate for V&C would be 20%.  Let's assign the probability of occurrence as follows: 40% for most likely, 35% for optimistic and 25% for worst case.  

Compute the following 

BTIRR and ATIRR for each scenario (you already have the optimistic estimate) 

The expected IRR given the 3 scenarios

The variance and standard deviation of IRRs and the coefficient of variation for  both before and after tax

Are the expected returns in excess of 12%?

Extra Credit:  Now, assume that the increase in value for year five is expected to be 6%.  What is the marginal return for keeping the property one additional year?  What is your advice?

Answer rating: 100% (QA)

To compute the BTIRR BeforeTax Internal Rate of Return and ATIRR AfterTax Internal Rate of Return for each scenario and calculate the expected IRR variance standard deviation and coefficient of variat... View the full answer