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You are advising a group of investors who are considering the purchase of a shopping center complex. They would like to finance 75 percent of the purchase price. A loan has been offered to them on the following terms: The contract interest rate is 4 percent and will be amortized with monthly payments over 20 years. The loan also will have an equity participation of 40 percent of the cash flow after debt service. The loan has a "lockout" provision that prevents it from being prepaid before year 5 . The property is expected to cost $5.5 million. NOr is estimated to be $400,000, including overages, during the first year, and to increase at the rate of 2 percent per year for the next five years. The property is expected to be worth $6.25millian ot the end of five years. The improvement represents 80 percent of cost, and depreciation will be over 39 years with no mid-month convention for year 1 to keep it simple. Assume a 35 percent tax bracket for ordinary income, a 25 percent for depreciation recapture, and 20 percent for copital gains taxes and a holding period of five years. Required: a. Compute the BTiRR and ATRR after five years, taking into account the equity participation. b. What would the BEiR be on such a project? What is the projected cost of the equity participation financing? c. Is there fovorable leversge wat the proposed loan? Complete this question by entering your answers in the tabs below. Compute the BnRR and ATIRR after five years, taking into account the equity participation. 100 not round intermediate calculations. Round your firal answers to 2 decimal places.) Complete this question by entering your answers in the tabs below. What would the BEIR be on such a project? What is the projected cost of the equity participation financing? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

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