(7 points, 4+3) Consider the levered DCF model provided to you in tab A3 of the Excel spreadsheet. a. Calculate the maximum price that an investors with the assumptions made in the model should be willing to pay for that property. Show this maximum price in cell C8. b. If you expect a general increase in the risk premium for real estate investments over the next 8 years, how would this affect the expected levered return on this property? Briefly Explain.

Answer n Payment age Rate uisition Price S 6,000,000 $10,200,000 $540,0 1st Year NOI evered Required Rate Minumum Required DCR 11.00 uired Rate of Return ected NOI Growth 8.0 3.0 2.50 0.50 Terminal NOI Growth xt Investor Req Premium er oan xt buyer Required return age Payment (Annual) $351,453 iminum DCR satisfied? Yes PV(CF) $6,000,000 $6,000,0 End of year PV REV Total CF $10,200,000 NOI PV NOI REV Total PV CF $540,000 $500,000 $556,200 $476,852 $572,886 $454,775 $590,073 $433,721 $607,775 $413,641 $626,008 $394,491 $644,788 $376,228 $664,132 $358,810 $11,345,586 $6,129,667 $6,488,477 $12,009,718 $500,000 $540,00o $476,852 $556,200 $454,775 $572,886 $433,721 $413,641 $394,491 $376,228 $644,788 $351,453 $351,453 $351,453 $351,453 5351,453 $351,453 $351,453 $188,547 $169,862 204,747$166,177 $221,433 $%161,910 $238,619$157,186 $256,322 $274,555 $146,788 $293,335 $141,287 $590,073 $607,775 $626,008 $152,114 $3,380,459 $8,629,260 $3,744,464 Total PV: $%9,538,186 -$661,814 6.92% IRR: Amortization schedule: Ending balance $4,200,000 1 $231,000 $120,453 $4,079,547 2 $224,375 $127,078 3,952,469 3 $217,386 $134,067$3,818,401 4 $210,012 $141,441 $3,676,960 5 $202,233 $149,220 3,527,740 6 $194,026 $157,427 3,370,312 7 $185,367 $166,086 3,204,226 8 $176,232 $175,221$3,029,006 9 $166,595 $184,858 $2,844,148 10 $156,428 $195,025 $2,649,123 11 $145,702 205,751 $2,443,371 12 $134,385 $217,068 $2,226,303 13 $122,447 $229,006 $1,997,297 14 $109,851 $241,602 $1,755,695 $96,563 $254,890 $1,500,805 82,544 $268,909 $1,231,896 67,754 283,699 $948,197 $52,151 $299,302 $648,895 35,689 $315,764 $333,131 $0 20 $18,322 $333,131