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Mr. Gregory White, Master's Degree
Category: Multiple Problems
Satisfied Customers: 4603
Experience:  M.A., M.S. Education / Educational Administration
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"For Mr. Greg" You are considering the purchase of an apartment

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"For Mr. Greg"
You are considering the purchase of an apartment complex. The following assumptions are
• The purchase price is \$1 million.
• Potential gross income (PGI) for the first year of operations is projected to be \$171,000.
• PGI is expected to increase 4 percent per year.
• No vacancies are expected.
• Operating expenses are estimated at 35 percent of effective gross income.
• The market value of the investment is expected to increase 4 percent per year.
• Selling expenses will be 4 percent.
• The holding period is four years.
NOIs and the projected NSP is 12 percent.
• The after-debt required rate of return is 14 percent.
• 70 percent of the purchase price can be borrowed with a 30-year, monthly payment mortgage.
• The annual interest rate on the mortgage will be 11.5 percent.
• Financing costs will equal 2 percent of the loan amount.
• There are no prepayment penalties.
a. Calculate net operating income (NOI) for each of the four years.
b. Calculate the net selling price from the sale of the property.
c. Calculate the net present value of this investment (assuming no mortgage debt). Should you purchase? Why?
d. Calculate the internal rate of return of this investment (assuming no debt). Should you purchase? Why?
e. Calculate the monthly mortgage payment.
What is the total per year?
f. Calculate the loan balance at the end of years 1, 2, 3, and 4. (Note: the unpaid mortgage balance at any time is equal to the present value of the remaining payments, discounted at the contract [face] rate of interest).
Submitted: 3 months ago.
Category: Multiple Problems
Expert:  replied 3 months ago.
Thanks so much for the request! You are a valued client and I look forward to helping you anytime.

Feel free to request me anytime. Just put "For Mr. Greg" at the front of your post or, even better, bookmark my weblink at www.GregPearl.com and use the question box on my page - still put the "For Mr. Greg Only" in the front of the post so it is directly sent to me.

All the best in your studies and have a wonderful rest of the week.
Mr. Gregory White, Master's Degree
Satisfied Customers: 4603
Experience: M.A., M.S. Education / Educational Administration

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