Fill in the sheet titled NPV-IRR. Lydia will buy the property in 2014, she will collect NOI
Question:
Fill in the sheet titled “NPV-IRR”. Lydia will buy the property in 2014, she will collect NOI for 5 years 2015-2019, and she will sell it in 2019.
Lydia’s loan has a 5/4/3/2/1 prepayment penalty structure, so if she prepays in the first year, she will pay a penalty equal to 5% of the balance, in the second year she will pay a penalty equal to 4% of the balance etc.
Lydia forecasts NOI will grow at 2% per year, compounded annually. Lydia forecasts she can sell the property in 2019 at a 6.25% cap rate. Recall: Sale Price in 2019=NOI 2020/Cap rate 2019
(3.a) How much will Lydia sell the property for in 2019?
(3.b) How much of a capital gain will Lydia earn? (Hint: capital gain = sale price – purchase price)
(3.c) What is Lydia’s IRR for this investment?
(3.d) If Lydia’s discount rate is 25%, what is her NPV? Should she make this investment?
(3.e) Plot Lydia’s NPV for discount rates 0%-100%. Copy and paste the chart below.
Expert Answer:
Question Formulas NOINOI in previous year12 Net Cash Flow for each year Purchase Price Purchase Cost ... View the full answer
