Use Excel to create all solutions. Use the mathematical functions within excel to make all calculations.

A university bought an office building for $6,500,000 5 years ago for use as a residential area. The assumptions are:

First-year potential gross income of $1,200,000 with a 3.2% annual growth rate

Vacancy & collection losses equal to 12% of PGI

Operating expenses:

First-year insurance of $145,000 with a 2.5% annual growth rate

First-year Utilities of $137,000 with a 2% annual growth rate

First-year Maintenance Expense of $75,000 with a 1.5% annual growth rate

Capital expenditures = 4% of EGI with a .5% annual escalation

70% LTV at 6%

The mortgage will be amortized over 25 years

Total up-front financing costs:

2 points of the loan amount

$1000 appraisal fee

Calculate After Tax NPV and IRR using Excel. Similar properties use a 6.5% discount rate.

Did the university make a good choice by investing in this property?