Please show your work in a logical manner. In the written responses more weight is placed on content and organization than on quantity. It's okay to send me a electronic file in Word or Excel. Even when you use Excel, be sure to setup the problems.

UNIVERSITY OF MEMPHISFOGELMAN COLLEGE OF BUSINESS AND ECONOMICS DEPARTMENT OF FINANCE, INSURANCE AND REAL ESTATE FIR 4320 / 6320 Problem Set #2 Mark Sunderman 2) Assume that you were given an opportunity to purchase a real estate project using an equity participation loan. The NOI for each year of the holding period are shown below: 2 Annual payments are being used to make the problem easier! Year 1 Year 2 Year 3 NOI 124,787 132,225 139,954 Year 4 148,46 8 Additional information: . 1) Purchase price = $1,900,000 . 2) Estimated value of land = $500,000 . 3) Anticipated mortgage terms: a) Loan to value ratio = .80 b) Interest rate = 5.5%c) Years to maturity = 25 . d) Points charged = 3 . e) Prepayment penalty = 2% of outstanding balance . f) Level payment, fully amortized . g) Fixed interest rate, monthly payments . 4) Participation terms:a) Share of NOI = 17.5% over $130,000 b) Share of Appreciation = 20% . 5) Future sales price = $2,350,000 . 6) Estimated selling expenses as proportion of future sales price = 5% . 7) Client's minimum required before-tax rate of return on equity = 12% Calculate: a. The before-tax cash flows and the before-tax equity reversion (you do not need to calculate the after-tax cash flows or reversion). b. The before-tax net present value to the investor