The airport will have an effective gross income of $30 millionover the next year and operating expenses that are 20% of effectivegross income over the forecast horizon after being $10 million thisyear due to a major renovation. The effective gross income isexpected to continue to grow at the rate of the local economy whichis a steady 3.25%. A going-in cap rate based on some fairly stalecomparables in this highly illiquid market is 6.75% and thegoing-out cap rate is forecast to be the same.

The seaport enjoyed $38 million in effective gross income lastyear but this will only grow at 1% a year due to deglobalizationeffects. Last year operating expenses were $9.5 million but theyare expected to grow at the local rate of inflation of 7.5% whichwill decline linearly in time before hitting the central banktarget of 2% (where it will remain thereafter) in 10 years time.The pension plan requires a 12% return on an asset like this andthe going out cap rate is expected to be 9% when the host countryhas completed its industrialization and transition to a consumereconomy.

Calculate the value of each of these properties but just asimportantly your portfolio manager wants you to produce margins oferror where you assume each going-out cap rate was off by 25%