The Table Below Shows Two 10-Year Cash Flow Projections (In

question 11

Essay

The table below shows two 10-year cash flow projections (in $ millions, including reversion) for the same property. The upper row is the projection that will be presented by the broker trying to sell the building, the bottom row is the realistic expectations. Suppose that it would be relatively easy for any potential buyers to ascertain that the most likely current market value for the property is about $10 million. What is the most likely amount of "disappointment" in the ex post annual rate of total return earned by an investor who buys this property believing the broker's cash flow projection?
$$\begin{array} { | l | r | r | r | r | r | r | r | r | r | r | } \hline \text { Year } & 1 & 2 & 3 & 4 & 5 & 6 & 7 & \mathbf { 8 } & 9 & 10 \\\hline \text { Presert } & \$ 1.00 & \$ 1.03 & \$ 1.06 & \$ 1.09 & \$ 1.12 & \$ 1.15 & \$ 1.19 & \$ 1.22 & \$ 1.26 & \$ 14.7 \\\text { ted } & 00 & 00 & 09 & 27 & 55 & 93 & 41 & 99 & 68 & 439 \\\hline \text { Realist } & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 11.0 \\\text { ic } & 00 & 00 & 00 & 00 & 00 & 00 & 00 & 00 & 00 & 000 \\\hline\end{array}$$


(a) 0.00%
(b) 1.00%
(c) 3.00% = Presentation IRR - Realistic IRR = (10% + 3%) - (10% + 0%) = 13% - 10%.
(d) 26.68%

---

Definitions:

Best Available Talent

The most skilled and suitable individuals for a particular job or task, considering the current pool of candidates or workforce.

Asians

Refers to individuals originating from the continent of Asia, often used in the context of discussing cultural, demographic, or sociological characteristics.

Westerners

Typically refers to individuals from Western Europe, North America, and other areas influenced culturally and politically by these regions.

Travelers

Individuals who move between different geographic locations, for purposes such as tourism, business, or leisure.