Investment Analysis Practice Problem Suppose that you are contemplating an investment in an office building. Use the information provided below to answer the questions that follow:

Type of Property: Office Building

Leasable Space: $300,000$

Average Rent: $$25$ per square foot per year

Expected Annual Rent Growth: $1\mathrm{.}5\%$ per year

Vacancy and Collection Losses: $17\mathrm{.}5\%$ of Potential Gross Income

Other Income: $$6\mathrm{.}00$ per square foot per year

Expected Growth in Other Income: $2\%$ per year

Operating Expenses: $40\%$ of Effective Gross Income

Capital Expenditures: $4\%$ of Effective Gross Income

Selling Expenses: $5\%$ of Future Selling Price

Going$-$Out Cap Rate: $8\mathrm{.}0\%$

Expected Purchase Price: $$60$ million

Loan Terms:

Loan Amount: Interest Rate: $75\%$ of purchase price

$7\mathrm{.}5\%$ per year with monthly payments and monthly compounding

Amortization Term: $25$ years

a$.$ What is the internal rate of return of the before$-$tax unlevered cash flows if you assume a seven$-$year holding period?

b$.$ What is the net present value of the before$-$tax levered cash flows if you still assume a five$-$year holding period and a $7\%$ discount rate?