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: $9,800,000 $590,000 0.06020408 0.08 n Payment Mortgage Rate uisition Price $5,500,000 0.055 20 Expected 1st Year NOI Required Rate of Return Expected NOI Growth Terminal NOI Growth d Required Rate Minumum Required D 0.025 ext Investor Req Premium ext buyer Required return 0.085 1.6397 Yes gage Payment (Annual) $359,821 iminum DCR satisfied? NOI PV NOI PV REV Total PV Total CF DS PV(CF) $5,500,000 $5,500, End of year CF $9,800,000 $590,000 $546,296 $607,700 $521,005 $625,931 $496,884 $644,709 $473,880 $664,050 $451,941 $683,972 $431,018 $704,491 $411,064 $725,626 $392,033 $12,396,104 $6,697,229 $7,089,262 $13,121,729 $546,296$590,000 $521,005 $607,700 $496,884$625,931 $473,880 $644,709 $451,941 $664,05o $431,018 $683,972 $411,064 $704,491 $359,821 $359,821 $359,821 $359,821 $359,821 $359,821 $359,821 3,460,946 $230,179 $207,368 $247,879 $266,110 $194,577 $284,888 $187,6 304,229 $180 $324,151 $173 $344,670 $201,184 $166,01 $9,660,783 $4,192,070 Total PV: $10,421,351 NPV: IRR: $621,351 0.09005022 NPV: Answer: $9,800,000 $590,000 0.06020408 0.08 n Payment Mortgage Rate uisition Price $5,500,000 0.055 20 Expected 1st Year NOI Required Rate of Return Expected NOI Growth Terminal NOI Growth d Required Rate Minumum Required D 0.025 ext Investor Req Premium ext buyer Required return 0.085 1.6397 Yes gage Payment (Annual) $359,821 iminum DCR satisfied? NOI PV NOI PV REV Total PV Total CF DS PV(CF) $5,500,000 $5,500, End of year CF $9,800,000 $590,000 $546,296 $607,700 $521,005 $625,931 $496,884 $644,709 $473,880 $664,050 $451,941 $683,972 $431,018 $704,491 $411,064 $725,626 $392,033 $12,396,104 $6,697,229 $7,089,262 $13,121,729 $546,296$590,000 $521,005 $607,700 $496,884$625,931 $473,880 $644,709 $451,941 $664,05o $431,018 $683,972 $411,064 $704,491 $359,821 $359,821 $359,821 $359,821 $359,821 $359,821 $359,821 3,460,946 $230,179 $207,368 $247,879 $266,110 $194,577 $284,888 $187,6 304,229 $180 $324,151 $173 $344,670 $201,184 $166,01 $9,660,783 $4,192,070 Total PV: $10,421,351 NPV: IRR: $621,351 0.09005022 NPV