3) Suppose you are planning to develop a small strip mall in Ankeny. The project will take one year to build and start generating revenue one year from now (assume you receive all rent payments at the start of the year). You plan to hold the property for 4 years and sell it five years from now (at the start of the 5th year).

Assumptions:

- Total Development Costs: $500,000 (takes only one year to develop)

- Loan: 5-year, $300,000 interest-only loan at 5.5% annual interest rate (i.e. you pay 5.5% of the loan amount every year for 4 years and repay the full $300,000 when you sell the property at the start of year 5. Assume the first payment is due at the start of year 1.)

- Net Operating Income: $5,000 (year 1); $20,000 (year 2); $30,000 (year 3); $60,000 (year 4)

- Sale Price: Based on a 10% Cap Rate (using year 4 NOI).

a) Based on these assumptions, set up a DCF for this project in excel. What is the net present value (assuming a required rate of return of 8%) and the projects IRR? (40 pts)

b) What is the Cash-on-Cash and ROA for the project? (Use the average NOI and BTCF for the four years of the project) (10 pts).

Show all your work, and show how you get the numbers on EXCEL.