a.  What cap rate should be found in the market for similar properties?

b. Assuming the investment will be owned for 7 years and then sold, what is the value of the property today?

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For the following office property, an investor expects the annual NOI for the property will be $1,000,000 and remain flat for the next 3 years. Subsequently, the cash flows will be as below. It is further expected that beginning in year 7 an every year thereafter, NOI will reflect at stable market and grow at 3% per year indefinitely. The investor believes that investors should earn 12% total return on this type of investment. End of Year NOI 1 234567 -5 6 1,000,000 1,000,000 1,000,000 1,200,000 1,250,000 1,300,000 1,339,000 For the following office property, an investor expects the annual NOI for the property will be $1,000,000 and remain flat for the next 3 years. Subsequently, the cash flows will be as below. It is further expected that beginning in year 7 an every year thereafter, NOI will reflect at stable market and grow at 3% per year indefinitely. The investor believes that investors should earn 12% total return on this type of investment. End of Year NOI 1 234567 -5 6 1,000,000 1,000,000 1,000,000 1,200,000 1,250,000 1,300,000 1,339,000

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This question involves two parts finding the appropriate capitalization rate cap rate for similar properties in the market and determining the current value of the property given the projected cash fl... View the full answer