You are looking to acquire an apartment building that is currently for sale in the Washington,...

 

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You are looking to acquire an apartment building that is currently for sale in the Washington, DC market. Assume that the cash flows provided below represent your analysis of the investment. (6pts) Washington, DC Apartment Asset Year 2 Net Operating Income $1,800,000 $20.000 $1,899,000 $2,003,445 $20,600 $21,218 Capital Expenditures Property Before Tax Cash Flow $1,780,000 $1,878,400 $1.982.227 $2,091,780 $2,113,634 $2,229,884 $21,855 $22,510 $2,207,374 a. Assuming current market cap rates for similar product are 4.5%, what is the value of the building assuming a direct capitalization approach to value? b. Assume you intend to hold the asset for 4 years and that you expect to sell that asset using an exit cap rate of 5% at the end of the 4th year. Using the value you determined in the prior question, what is the unleveraged IRR for this investment? c. Assume that you put a 65% loan on the building at closing. The loan has an interest rate of 3.0%, 30 year amortization and 4 year term. What is the leveraged IRR assuming your purchase price in the prior question? You are looking to acquire an apartment building that is currently for sale in the Washington, DC market. Assume that the cash flows provided below represent your analysis of the investment. (6pts) Washington, DC Apartment Asset Year 2 Net Operating Income $1,800,000 $20.000 $1,899,000 $2,003,445 $20,600 $21,218 Capital Expenditures Property Before Tax Cash Flow $1,780,000 $1,878,400 $1.982.227 $2,091,780 $2,113,634 $2,229,884 $21,855 $22,510 $2,207,374 a. Assuming current market cap rates for similar product are 4.5%, what is the value of the building assuming a direct capitalization approach to value? b. Assume you intend to hold the asset for 4 years and that you expect to sell that asset using an exit cap rate of 5% at the end of the 4th year. Using the value you determined in the prior question, what is the unleveraged IRR for this investment? c. Assume that you put a 65% loan on the building at closing. The loan has an interest rate of 3.0%, 30 year amortization and 4 year term. What is the leveraged IRR assuming your purchase price in the prior question?

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a Assuming current market cap rates for similar product are 45 what is the value of the building ass... View the full answer