6 . You own a building that a local business wants to rent for the next 10 years. T he business owner has offered

to either pay you (A) $50,000 in a lump sum today or (B) $ 8, 500 at the end of each of next 10 years. If your required rate of return is 12%, which payment schedule should you accept?

7 . How much would you pay to participate in a real estate project that pays nothing for the first 10 years and $ 25 ,000 for the following 10 years if you ca n earn 1 4 % return on other investments of similar risk?

8 . Calculate the IRR and NPV for the following cash flows. Assume a 12 % discount rate

Year              Project 1 Cash flow                Project 2 Cash flow

0                  -25,000                                  -25,000

1                    6,000                                       10,000

2                    5,500                                       12,500

3                    7,000                                        5,000

4                     9,500                                       4,000

5                     16,500                                      2,000

9 . If your tenant pays you rent of $ 1 5 ,000 a year for 8 years, what is the present value of the series of payments discounted at 1 3 % annually? Assume rent is paid at the end of each year.

10. You are going to invest $280,000 in a real estate investment project that generates the following cash flows.
Year                       1                    2                  3                   4                  5
Cash flow           75,000       75,000         80,000       85,000      120,000

Assuming a 12.5% discount rate, what is the NPV of this project? What is the IRR?

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