You are considering the acquisition of an office building. The purchase price is $775,000. Seventy-five percent of the purchase price can be borrowed with a 30-year, 7.5 percent mortgage. Payments will be made annually. Up-front financing costs will total three percent of the loan amount. The expected before-tax cash flows from operations--assuming a 5-year holding period-are as follows:
|
Year
|
BTCF
|
|
1
|
$48,492
|
|
2
|
53,768
|
|
3
|
59,282
|
|
4
|
65,043
|
|
5
|
$71,058
|
The before-tax cash flow from the sale of the property is expected to be $295,050. What is the net present value of this investment, assuming a 12 percent required rate of return on levered cash flows? What is the levered internal rate of return?