Problem $7\mathrm{.}4$

An investor is considering the acquisition of a "distressed property" which is on Northlake Bank's REO list. The property is available for

$$201,800$ and the investor estimates that he can borrow $$160,000$ at $4\mathrm{.}5$ percent interest and that the property will require the

following total expenditures during the next year:

Required:

o$.$ The investor is wondering what such a property must sell for after one year in order to earn a $20$ percent return $($IRR$)$ on equity.

b$.$ The lender is now concerned that if the property does not sell, investor may have to carry the property for one additional year. He

believes that he could rent it $($starting in year $2)$ and realize a net cash flow before debt service of $$1,740$ per month. However, he

would have to make an additional $$7,740$ in interest payments on his loan during that time, and then sell. What would the price have to

be at the end of year $2$ in order to earn a $20$ percent IRR on equity?

Complete this question by entering your answers in the tabs below.

Required A

The investor is wondering what such a property must sell for after one year in order to earn a $20$ percent retum $($IRR$)$ on

equity.

Note: Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.

Sale value of property

The lender is now concerned that if the property does not sell, investor may have to carry the property for one additional

year. He believes that he could rent it $($starting in year $2)$ and realize a net cash flow before debt service of $$1,740$ per

month. However, he would have to make an additional $$7,740$ in interest payments on his loan during that time, and then

sell. What would the price have to be at the end of year $2$ in order to earn a $20$ percent IRR on equity?

Note: Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.

Sale value of property