You are an experienced property analyst. Your client has identified an income producing property in the Laucala

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Question:

You are an experienced property analyst. Your client has identified an income producing property in the Laucala Beach Industrial precinct and would like to consult you on the viability of the investment. Below are details of the subject property:
Current Market Price $ 7,000,000
Net-lettable area (m2) 4,500
Acquisition-related cost (stamp duty, lawyers etc.) $ 415,000
Potential Gross Income per square meter (m2 ) $ 150
Vacancy 8%
Operating Expense per square meter (m2 ) $ 25
Loan to Value Ratio (% ) 60%
Investment Loan Interest Rate/pa (fully amortizing) 7.80%
Loan Term (years) 20
Compounding/year 12
Depreciation/pa $ 156,000
Investor's Marginal Tax Rate 45%
Growth in PGI/pa 4.5%
Growth in OPEX/pa 3.50%
Expected After-Tax Disposition Cash Flow (end of Year 5) $ 4,200,000

a) The client chooses to take an expected rate of return on equity of 13.00%pa. Complete the Multi Year Cash Flow and calculate the NPV and IRR?
b) If the purchase price is reduced to $6,000,000 would you regard this to be a good investment? Why? [show necessary working]