Project $3-$ Investment Calculations & Decisions

Objective. Create a pro forma & conduct sensitivity analysis for financial leverage

Each student should submit their response based on the project assumptions below.

Consider the following loan information.

$$ Total acquisition price: $$3,000,000.$

$$ Property consists of twelve office suites, five on the first floor and seven on the second.

$$ Contract rents: three suites at $$2,400$ per month, two at $$3,000$ per month, and seven at

$$1,330$ per month.

$$ Annual market rent increases: $3\%$ per year.

$$ Vacancy and collection losses: $5\%$ per year.

$$ Operating expenses: $35\%$ of effective gross income each year.

$$ Capital expenditures: $6\%$ of effective gross income each year.

$$ Expected holding period: $5$ years.

$$ Expected selling price in year $5$: Year $6$ NOI capitalized at $5\%.$

$$ Selling expenses in year $5$: $3\%$ of the sale price.

$$ First mortgage loan: $75\%$ LTV$.$

$$ Annual mortgage interest rate: $4\mathrm{.}5\%.$

$$ Loan term and amortization period: $25$ years $($monthly payments$).$

$$ Total up$$front financing costs: $2\%$ of loan amount.

$$ Required return: $9\%$

$1.$ Create a five$$year operating pro forma which calculates BTCF and BTER.

$2.$ Calculate the NPV and IRR of the project based on the levered cash flows.

$3.$ Calculate the project NPV of levered cash flows based on the following required return assumptions:

$10\%,12\%,14\%,16\%,18\%,$ and $20\%.$

$4.$ Calculate the project NPV at $9\%$ and IRRs for levered cash flows based on the following LTV

assumptions: $0\%,60\%,70\%,75\%,80\%,85\%,$ and $90\%.$

$5.$ Calculate the project IRRs for levered cash flows based on the following PGI growth rate assumptions:

$1\%,+1\%,+3\%,+5\%,$ and $+7\%.$

$$ Complete #$5$ above for initial LTV ratios of $0\%,60\%,75\%,$ and $90\%.$