A Certain Housing Development Has the Following Projected Equity Net $$\begin{array}{lrrrrr}Year&&1&2&3&4&5\\Project~ net~ cash~ flows&&\$8,000)&\$4,000)&\$2,000&\$6,000&\$10,000\end{array}$$

question 8

Essay

A certain housing development has the following projected equity net cash flows per year in thousands):
$$\begin{array}{lrrrrr}Year&&1&2&3&4&5\\Project~ net~ cash~ flows&&\$8,000)&\$4,000)&\$2,000&\$6,000&\$10,000\end{array}$$

There are to be two classes of investors providing the equity capital. A preferred investor is committed to provide $6 million with a 10% preferred return computed on a current basis, accumulated with compounding). The subordinated or residual) equity partner will put in the first $3 million, and then whatever is required after the preferred investor puts in their $6 million.
Set up the projected capital accounts of these two classes of investors with their projected cash flows each year, and compute the projected IRR for:
a) The underlying project equity as a whole;
b) The preferred equity investor; and
c) The subordinated equity investor.

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