Step #1: Using Excel, build a cash flow model to calculate the NPV and IRR of the following real estate transaction. This step is worth 45 points. Please submit completed model in Canvas by midnight on Sunday, May 2nd.

Step #2: Be prepared to explain orally how your model works and whether or not the investor should invest in the real estate asset; this will take place on Thursday, May 6th. This step is worth 45 points.

Asset Type: Office - Urban

Land Cost: $ 600,000

Building Cost: $3,200,000

Total Cost: $3,800,000

Holding Period: 5 years

Gross Rent: year 1 $550,000

Vacancy Rate: 3%

Operating Expenses: year 1 15% of gross rent

Growth Rates:

Gross Rent: 5%

Operating Expenses: 5%

Resale Price: 7%

Resale Expense Rate: 7%

Investors Tax Bracket: 35% on Ordinary Income

25% on Recapture of Depreciation

15% on Capital Gain

Cost of Equity: 15%

Cost of Debt: 10%

Amount of Debt: $2,750,000

Loan Amortization: 30 years