S. S. Sarkar (S.S.S.), a real estate investment company, is considering investing in a shopping center. The sale price is $5,000,000 and S.S.S. expects to have positive after-tax and after-mortgage payment cash flows from rents of $550,000 for the next three years. S.S.S. can obtain a mortgage with a downpayment of $3,000,000. At the end of the third year, S.S.S. anticipates selling the shopping center for a net after- tax gain on sale of $4,500,000. If S.S.S.’s required return is 30%, should S.S.S. go ahead and purchase the shopping center?

Fill in the inputs NPV & IRR Table:

Year cash flow Inputs:

0 Initial outlay

1 CF

2 ATGS

3 r

NPV

IRR

1. Calculate the NPV and the IRR.

2. What is the maximum down payment S.S.S. needs to make, assuming it does not effect the yearly cash flows, for S.S.S. to exactly meet its required return of 30%?