a. What is the Present Value using a discount rate of 8% given the following cash flows?

Year 1: 40,000

Year 2: 42,000

Year 3: 44,000

Year 4: 45,000

Year 5: 37,000

And, a sale occurs at the end of year 5 at a price of $425,000.

A) $517,238

B) $455,480

C) cant determine from the facts given

D) $122,344

b. Same facts as part a. Would you pay the asking price of $502,000 ?

A) Yes, because the NPV is positive

B) No, because the NPV is negative

C)

D)

c. Same facts as part a. If you pay $395,000 for the deal, what is the Internal Rate of Return?

A) 5.44%

B) 7.92%

C) 11.74%

D) 6.67%

d. If you financed the deal in part c with a loan at 4.00% at a LTV of 70% over 20 years, what is the annual debt service (calculate the monthly payment and multiply by 12)

A) $20,106

B) $31,234

C) $37,446

D) $1,675.54