This question shows how leverage influences IRR and that high leverage may incentivize default. 1. You...

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This question shows how leverage influences IRR and that highleverage may incentivize default. 1. You pay $1000 for a propertywith 9% cap rate, keep it for 5 years, and sell at the end of year5 at the same cap rate. The selling costs are 5% of the price. Whatis your IRR? Enter your answer in percent, but without percentsign. 8.15% 2. You are doing the same as above but instead ofpaying cash, you take a 70% LTV IO loan at 5% annual rate. What isyour IRR? ?10.95%? 3. In addition to the loan above you take amezzanine IO loan of $200 at 8% annual rate. What is your IRR?12.87 The neighborhood is declining, so your selling cap rate is11% in questions 10-13. You have limited liability: you can walkaway anytime. If you walk away in year t, you also lose the netincome in that year so that your cash flow for year t is zero. 4.You pay cash as in Question 1 above. What is your IRR? 4.97% 5. Youtake the loan as in Question 2 above. What is your IRR? 4.86% Youtake an additional mezzanine loan as in Question 3 above. What isyour IRR? need answer for question 6

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This question shows how leverage influences IRR and that highleverage may incentivize default. 1. You pay $1000 for a propertywith 9% cap rate, keep it for 5 years, and sell at the end of year5 at the same cap rate. The selling costs are 5% of the price. Whatis your IRR? Enter your answer in percent, but without percentsign. 8.15% 2. You are doing the same as above but instead ofpaying cash, you take a 70% LTV IO loan at 5% annual rate. What isyour IRR? ?10.95%? 3. In addition to the loan above you take amezzanine IO loan of $200 at 8% annual rate. What is your IRR?12.87 The neighborhood is declining, so your selling cap rate is11% in questions 10-13. You have limited liability: you can walkaway anytime. If you walk away in year t, you also lose the netincome in that year so that your cash flow for year t is zero. 4.You pay cash as in Question 1 above. What is your IRR? 4.97% 5. Youtake the loan as in Question 2 above. What is your IRR? 4.86% Youtake an additional mezzanine loan as in Question 3 above. What isyour IRR? need answer for question 6