The Property Group is interested in purchasing Hudson Landing in New York City for $2,000,000. The company analysts have reviewed the current leases: current net rent is $250,000 a year; all the leases expire this month.

The Property Group's game plan is to buy, raise rents as much as the market will bear, and resell in four years. The company requires a minimum of an 18% return on all of his investments. The company has two different market studies, with two different possible scenarios about future cash flows.

Scenario 1: The first market study shows that the economy will only grow slightly over the next four years. If this is the case, he will only be able to raise rents about 2% a year, and the value of the building itself will likely appreciate by 2% a year.

1. Based on the assumptions in the scenario you are relying on, what is the NPV and IRR of the Hudson Landing deal? Show how you arrived at your answers using Excel (find NPV and IRR using Excel functions).

2. Should The Property Group invest? Why?

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Answer rating: 100% (QA)

1 To calculate the NPV and IRR of the Hudson Landing deal we need to first calculate the cash flows ... View the full answer