Question

A client has requested advice on a potential investment opportunity involving an income-producing property. She would...

A client has requested advice on a potential investment opportunity involving an income-producing property. She would like you to determine the internal rate of return of the investment opportunity based on the following information: expected holding period: years; end of first year NOI estimate: $110,000; NOI estimates in subsequent years will grow by 6 % per year; price at which the property is expected to be sold at the end of year 5: $1,615,205.22; current market price of the property: $1,475,667.71.

Homework Answers

Answer #1
T=0 T=1 T=2 T=3 T=4 T=5
Initial Cost - 1,475,667.71
NOI    110,000.00    116,600.00    123,596.00    131,011.76        138,872.47
Salvage Value    1,615,205.22
Total - 1,475,667.71    110,000.00    116,600.00    123,596.00    131,011.76    1,754,077.69

The cashflows in each of the years (with T=0 meaning now, and T=1 meaning the end of the 1st year and so on) are shown in the table above

IRR of all the above cashflows (and that of the investment opportunity) is 9.87%

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