Let's break it down step by step: ### **Given:** - **NOI Year 1:** $120,000 - **NOI growth:** 5% per year - **Purchase Price:** $620,000 - **Equity Financing:** 100% (i.e., no debt; all-cash purchase) - **Holding Period:** 4 years - **Sale Price at Year 4:** $800,000 - **Selling Costs:** 4% of Sale Price - **Required Unlevered Rate of Return (Discount Rate):** 10% --- ### **Step 1: Calculate NOI for Each Year** \[ \text{NOI}_1 = \$120,000 \] \[ \text{NOI}_2 = \$120,000 \times 1.05 = \$126,000 \] \[ \text{NOI}_3 = \$126,000 \times 1.05 = \$132,300 \] \[ \text{NOI}_4 = \$132,300 \times 1.05 = \$138,915 \] --- ### **Step 2: Calculate Net Sale Proceeds at Year 4** \[ \text{Selling Costs} = 0.04 \times \$800,000 = \$32,000 \] \[ \text{Net Sale Proceeds} = \$800,000 - \$32,000 = \$768,000 \] --- ### **Step 3: Cash Flows** | Year | Cash Flow | |------|-----------------------------| | 0 | -$620,000 (purchase price) | | 1 | $120,000 (NOI) | | 2 | $126,000 (NOI) | | 3 | $132,300 (NOI) | | 4 | $138,915 (NOI) + $768,000 (sale) = $906,915 | --- ### **Step 4: Calculate NPV** \[ \text{NPV} = -620,000 + \frac{120,000}{(1.10)^1} + \frac{126,000}{(1.10)^2} + \frac{132,300}{(1.10)^3} + \frac{906,915}{(1.10)^4} \] Calculate each term: - Year 1: \( \frac{120,000}{1.10} = 109,090.91 \) - Year 2: \( \frac{126,000}{1.10^2} = \frac{126,000}{1.21} = 104,132.23 \) - Year 3: \( \frac{132,300}{1.10^3} = \frac{132,300}{1.331} = 99,428.46 \) - Year 4: \( \frac{906,915}{1.10^4} = \frac{906,915}{1.4641} = 619,369.30 \) Add these up: \[ \text{NPV} = -620,000 + 109,090.91 + 104,132.23 + 99,428.46 + 619,369.30 \] \[ \text{NPV} = -620,000 + 932,020.90 = 312,020.90 \] --- ### **Final Answer** \[ \boxed{\text{Unlevered NPV} = \$312,021} \] (Rounded to the nearest dollar)