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Transitions A S Example What is the NPV at a discount rate of 6% and the IRR given the following assumptions? Revenue: Construction will take 2 full years, with the building opening at the start of year Costs: Equity: $200,000 $400,000, 10-year interest-only loan at 5% APR. (i.e. you pay 5% of the principal every year for ten years and repay the full loan amount when you sell the property. Assume the first payment is due when you sign the loan.) Operating expenses (once development is complete): $10,000 You already have one lease signed for half the building starting in year 2 valued at $40,000 annually. In year 4 you expect to lease half the remaining space an additional $20,000 annually) and by year 5 you will have the building fully leased at a total annual cash flow of $80,000. Finally, you expect to sell the building at the beginning of year 11 for $1,000,000 Transitions A S Example What is the NPV at a discount rate of 6% and the IRR given the following assumptions? Revenue: Construction will take 2 full years, with the building opening at the start of year Costs: Equity: $200,000 $400,000, 10-year interest-only loan at 5% APR. (i.e. you pay 5% of the principal every year for ten years and repay the full loan amount when you sell the property. Assume the first payment is due when you sign the loan.) Operating expenses (once development is complete): $10,000 You already have one lease signed for half the building starting in year 2 valued at $40,000 annually. In year 4 you expect to lease half the remaining space an additional $20,000 annually) and by year 5 you will have the building fully leased at a total annual cash flow of $80,000. Finally, you expect to sell the building at the beginning of year 11 for $1,000,000

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