Question 8: uppose a certain property is expected to produce net operating cash flows annually as follows, at the end of each of the next five years: $35,000, $37,000, $45,000, $46,000, and $40,000. In addition, at the end of the fifth year we will assume the property will be (or could be) sold for $400,000, what is the highest price you would be willing to pay for this property? (ie. at what price does the net present value equal zero? ie. at what price is the IRR equal to the discount rate?)
A  $400,044 
B  $400,000 
C
$400,049 
D  $375,000 
year 
cash flow 

0 
400000 

1 
35000 

2 
37000 

3 
45000 

4 
46000 

5 
440000 

IRR = Using IRR function in MS excel =IRR(400000,35000,37000,45000,47000,440000) 
10.0542% 

year 
cash flow 
present value of cash flow = cash flow/(1+r)^n r= 10.0542% 
0 

1 
35000 
31802.51 
2 
37000 
30548.4 
3 
45000 
33759.24 
4 
46000 
31356.77 
5 
440000 
272533.3 
Maxium price for the project at IRR rate 
sum of present value of cash flow 
400000.2 
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