You are an analyst with Perception Partners and have been asked to make pricing recommendations regarding the acquisition of Rose Garden Apartments. This project was built five years ago and contains 250 units in a suburban market area. The broker that brought the project to your attention indicates that the asking price will be $27,000,000. She has also provided the attached information based on a market survey showing data from three sales of comparable apartment properties that have occurred in a one-mile radius of Rose Garden during the past six months (see table below).

Perception believes that market returns (IRR) should be in a range of 8 percent (compounded annually) for this type of investment. Perception (1) plans to own the property for five years and then sell it and (2) believes that rents will grow at 3 percent per year.

At the present time, Perception believes that the sale price that it hopes to achieve at the end of year 5 should be based on a "going-out" cap rate that will be .005 greater than the "going-in" cap rate. The property is to be acquired on an "all cash" basis.

a. Prepare an analysis of Rose Garden with the three comparable properties. Based on this analysis, do you think that the "going-in" cap rate today for Rose Garden should be higher or lower than the cap rates shown for the comparables?

b. If Rose Garden is acquired for $27,000,000, what would be the "going-in" cap rate at that price? How does this compare to cap rates for the comparables?

c. If Rose Garden is acquired for $27,000,000, would the 8 percent required return be achieved over the five-year period of ownership?