just took my final exam in my real estate principles class. the exam was online, and there was a question that i am sure is impossible, yet it wouldn’t make sense for him to do a trick question like this. please, if anyone knows, just tell me if it is impossible or not, and if it is possible, how you would compute it (not keystrokes, just the idea).

The question reads:

[i]8. An office building is purchased with the following projected cash flows:

-NOI is expected to be $130,000 in year 1 with five percent annual increases.

-The purchase price of the property is $720,000.

-80% debt financing is used to purchase the property at an interest rate of 7.00%

-The property is sold at the end of year 4 . The property has appreciated at a compund rate of 4% per year since purchase. Selling costs are five percent.

(Show all work)

a. Calculate the Net Sales Proceeds

b. Calculate the Before Tax Equity Reversion[/i]

Part A wants NSP, which would be selling price minus selling expenses, or $800,183.26; part B wants our BTER, before tax equity reversion, which would just be subtracting the remaining mortgage balance from the net sale price.

BUT… although it is easy to compute the NSP, and to derive a BTER, we need to be able to compute the remaining mortgage balance (RMB)!!! THE GIVENS IN THE PROBLEM CONCERNING THE MORTGAGE ARE LIMITED TO THE LOAN AMOUNT, AND THE INTERST, WITH NO MENTION OF TERMS OR PAYMENTS!!!

How in hell are you supposed to calculate how much is left on a $576,000 loan (80% times $720,000), at 7%, 4 years into it if you don’t know how long it is, or what the payments are??? if the loan is 4 years you are totally paid off, if the loan is 20 years you haven’t put much of a dent in it yet. I am dumbfounded at this question, which is frustrating because I was nailing everythign on this test, and i have been staring at this problem forever now and don’t see how it would be humanly possible to compute a remaining balance, at a future point in time, without knowing how much has already been paid.

if it really wasn’t supposed to be answerable, it wasn’t cool the way the question is setup; it doesn’t really lend itself to a ‘not enough info given’ answer the way it is written imo