You are considering the acquisition of a small office building. The purchase price is $775,000. Seventy-five percent of the purchase price can be borrowed with a 30-year, fully amortized mortgage with a 7.5% interest rate. Payments will be made annually. Up-front financing cost will total 3% of the loan amount. The expected before-tax cash flows from operations, assuming a 5-year holding period, are as follows:

Year BTCF

1 $48,492

2 $53,768

3 $59,282

4 $65,043

5 $71,058

The BTCF from the sale of the property is expected to be $295,050.

a) What is the net present value (NPV) of this investment assuming a 12% required rate of return on levered cash flows?

b) What is the levered internal rate of return?