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.

Down Payment Mortgage Rate Manutiry Acquisition Price Expected 1st Year NOI CAP Required Rate of Return Expected NOI Growth Terminal NOI Growth Next Investor Req Premium $9,500,000 $550,000 5.79% 8.00% 3.00% 2.50% 0.50% $ 5,000,000 5.50% 20 11.00% 1.25 Levered Required Rate Minumum Required DCR Terminal CAP Next buyer Required return Mortgage Payment (Annual) 6.00% 8.50% $376,557 Loan Amount DCR Miminum DCR satisfied? Mortgage Balance at Sale $4,500,000 1.46 Yes $3,245,363 NOI PV_NOI REV PV_REV Total PV DS End of year 0 1 2 3 4 $550,000 $566,500 $583,495 $601,000 $619,030 $637,601 $656,729 $676,431 $509,259 $485,682 $463,197 $441,753 $421,301 $401,797 $383,195 $365,454 $11,555,690 $509,259 $485,682 $463,197 $441,753 $421,301 $401,797 $383,195 $6,608,634 Total CF $9,500,000 $550,000 $566,500 $583,495 $601,000 $619,030 $637,601 $656,729 $12,232,120 $376,557 $376,557 $376,557 $376,557 $376,557 $376,557 $376,557 $3,621,920 Leveraged CF -$5,000,000 $173,443 $189,943 $206,938 $224,443 $242,473 $261,044 $280,172 $8,610,200 PV(CF) -$5,000,000 $156,255 $154,162 $151,311 $147,847 $143,896 $139,565 $134,947 $3,736,194 5 6 7 8 $6,243,180 Total PV: $9,714,819 NPV: IRR: $214,819 8.36% NPV: IRR: Amortization schedule: 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 P Ending balance $4,500,000 $247,500 $129,057 $4,370,943 $240,402 $136,155 $4,234,788 $232,913 $143,644 $4,091,144 $225,013 $151,544 $3,939,600 $216,678 $159,879 $3,779,721 $207,885 $168,672 $3,611,049 $198,608 $177,949 $3,433,100 $188,820 $187,737 $3,245,363 $178,495 $198,062 $3,047,301 $167,602 $208,955 $2,838,346 $156,109 $220,448 $2,617,898 $143,984 $232,573 $2,385,325 $131,193 $245,364 $2,139,961 $117,698 $258,859 $1,881,102 $103,461 $273,096 $1,608,005 $88,440 $288,117 $1,319,889 $72,594 $303,963 $1,015,926 $55,876 $320,681 $695,245 $38,238 $338,319 $356,926 $19,631 $356,926 $0 16 17 18 19 20