Question

An investor is considering renovating a building. The total cost of renovation is expected to be...

An investor is considering renovating a building. The total cost of renovation is expected to be $200,000, of which 75% can be borrowed. Given the after-tax cash flows to the equity investor as showed below, what is the incremental return from renovating?

1

2

3

4

5

ATCF after renovation

   5,545

   6,578

    7,632

   8,707

218,585

ATCF-no renovation

   6,156

   6,601

    7,054

   7,514

107,202

15.32%

9.75%

17.58%

12.13%
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Answer #1

Amount of Cash investment = $200000 * 25% = 50000

Option C 17.58%

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