QUESTION 3 (This question has three parts, (a), (b) and (c))

Abacus Property Group, a diversified property group listed on the Australian Stock Exchange (ASX), have asked you to evaluate an office building they would like to purchase. . You find the following information about this property:

Valuation date: Today Net lettable area: 7500m2

Current Market rent rate: $ 430/m2 per annum

Annual growth rate of market rent: 4% in first three years, and 3% after that Miscellaneous income: $6,000 per annum

Vacancy and collection allowance: 4% of potential gross income Operating Expenses: 10% of potential gross income

Depreciation: $90,000 per annum

No capital adjustment, acquisition cost or selling cost is required

You have also found the information about Abacus Property Group: Loan to value ratio for this investment: 30%

Loan annual interest rate: 4%

Expected rate of return on the equity of Abacus Property Group: 12% Corporate tax rate:30%

Holding period of property asset: 3 years

You have recently appraised the comparable sold evidence listed below:

Comparable	NOI ($)	Selling price ($)	Weight based on similarity
1	300,000	3,900,000	50%
2	315,000	3,800,000	30%
3	305,000	3,900,000	20%

1. Value the above property using the Direct Capitalisation Approach.
2. Value the above property using the DCF model (investment value).
3. If the purchase price is equal to the investment value estimated by DCF and interest-only repayment method is used, is this investment project feasible? Explain why.

[7+7+12=26 marks]