**Answer:**

Year 1 Year 2 Year 3 Year 4 Year 5

1. Present value $18,180 $18,172 $22,530 $21,173 $24,840

2. Present value of the net sales proceeds = $248,400

3. Total present value of the property = $104,895

4. Total return on the investment = $143,505

5. Forecasted appreciation in value on the property = $295,105

5B. The net present value (NPV) of the deal, if you pay $350,000 at Year 0 = -$101,600

5C. The IRR, using the short-cut method, = 15%

**Explanation:**

a) Data and Calculations:

Opportunity cost of capital (OCC) = 10%

NOI at the end of the 5th year = $40,000

Selling price at the end of the 5th year = $400,000 ($40,000 * 10)

Year 1 Year 2 Year 3 Year 4 Year 5

Net Operating

Income (NOI) $20,000 $22,000 $30,000 $31,000 $40,000

Discount factor 0.909 0.826 0.751 0.683 0.621

1. Present value $18,180 $18,172 $22,530 $21,173 $24,840

2. Present value of the net sales proceeds = $248,400 ($400,000 * 0.621)

3. Total present value of the property = $104,895 ($18,180 + $18,172 + $22,530 + $21,173 + $24,840)

4. Total return on the investment = $143,505 ($248,400 - $104,895)

5. Forecasted appreciation in value on the property = $295,105 ($400,000 - $104,895)

5B. The net present value (NPV) of the deal, if you pay $350,000 at Year 0 = -$101,600 ($248,400 - $350,000)

5C. The IRR, using the short-cut method, = 15% (100%/5 * 75%)