Question

Use the following cash flow and additional information to answer questions 6-8.

We have been asked to value a warehouse in Norfolk. Based on our market research, we have developed the following cash flow. Based on the same research, we have determine that should use a 5-year holding period (investment horizon). A reasonable yield rate (aka internal rate of return – IRR) is 11%. A reasonable terminal capitalization rate (reversion cap rate – rate of return applied to determine the resale) is 9%. There are no deductions for the cost of reselling the property.

Year	1	2	3	4	5	6
PGI	$10,000	$10,300	$10,609	$10,927	$11,255	$11,593
Vac & Coll Loss	$ (500)	$ (515)	$ (530)	$ (546)	$ (563)	$ (580)
EGI	$9,500	$9,785	$10,079	$10,381	$10,692	$11,013
Expenses	$3,800	$3,914	$4,031	$4,152	$4,277	$4,405
NOI	$5,700	$5,871	$6,047	$6,229	$6,415	$6,608

What is the assumed vacancy and collection loss as a percentage?

	a.	5%
	b.	95%
	c.	40%
	d.	60%

The value of the property at the end of year 5 is $64,722.

True

False

The present value of the property rounded the nearest hundred dollars is $65,800.

True

False

Answer 1

ruumed cuacancy and collection loss as a percentage yearl = 500/10000 35%. year 2 • 515/10,300 - 5'. year 3 : 530/10,609 = 4995% yearh - 546/10,927 = 4.9969%. your5 · 563)11255 - 5% Georo - 580111593 : 5% & Talse because value of the property at the end of years 5 = 0006/ Terminal - 6608/0.09 - 73422 rote *tobre because Pierent value of property: 5700 X 10.11 + 5871 x '/./12 + 6047 x 161.413 + 6229x 6.144 +(6415 + 73422) x 'ınms - 5135+ 4765+ 4422 +44103 +47379 = 65804