Use Excel to create all solutions and submit an excel document for final HW submission. Use the mathematical functions within excel to make all calculations. Partial credit is only possible if functions are used in all calculable cells. A score of 90% and above is required.

Drexel University financed their purchase of their investment property from the previous homework through an amortized loan from ABC Bank. After five years (2024) of operations, Drexel plans to continue growing the value of its investment in order to achieve a high cash flow on their investment. As a result, they hire a management team to manage the property and they charge 3% of NOI per annum.

  • The going-in cap rate for the property was 7%. ABC Bank was willing to lend Drexel 70% of the fair market value of the property. The term of the loan was 25 years, the interest rate = 4.5% and the risk-free rate is 1.5%. What is the maximum amount of debt Drexel could have taken?
  • Assume they take the maximum amount of debt that bank ABC offered.Their accountant determined that 35% of the property value was attributed to land while 65% was to the building. The building will depreciate for 39 years. Show the value of the building, the land, and annual depreciation.
  • Prepare a 10 year pro forma for the property, ending with ATCFs.Include the following assumptions:
    • Tax rate is 30%
    • Recapture tax rate is 20%
    • Capital gain tax rate is 15%
    • Going-out cap rate at the end of 10 years is 7.5%
  • Calculate the NPV (discount rate = 9%) and IRR of the property.