Your employer, Rubio LLC, is considering an investment in an office building that has the following cash flows: Purchase in Year 0…………… $ -2,750,000 Year 1………………. 220,000 Year 2……………….. 226,000 Year...

Your employer, Rubio LLC,  is considering an investment in an office building that has the following cash flows:

Purchase in Year 0……………   $ -2,750,000

Year 1……………….      220,000

Year 2………………..     226,000

Year 3………………..     250,000

Year 4…………………    255,000

Year 5 …………………   230,000, and a sale @ $3,290,000 takes place EOY 5

The company’s weighted average cost of capital that they use as their discount rate for such calculations is 12%

1. What would be the total cash flows in Year 5, taking into consideration the cash flows, annual debt service, sale price and the balance on the loan at the EOY 5?
   
   
   
   1. $1,662,985
   
   
   2. $1,937,607
   
   
   3. $1,802,986
   
   
   4. $1,343,455
   
   
   
   


2. What is the leveraged IRR of the project ?
   
   
   
   1. 64%
   
   
   2. 58%
   
   
   3. 48%
   
   
   4. 55%
   
   
   
   

In the above problem, you might expect

1. 
   
   
   
   1. The Yield to be higher than the discount rate because you sold the property at a profit.
   
   
   2. The NPV to be positive because the IRR is higher than the discount rate
   
   
   3. The NPV to be negative because the IRR is lower than the discount rate
   
   
   4. All of the above