Question

Your friend is considering buying a property for Sh, 50,000. If purchased the property will be...

Your friend is considering buying a property for Sh, 50,000. If purchased the property will be financed 60% by debt at 15% p.a. payable monthly for 5 years. The property will generate NOI of Sh, 5,000 and Sh, 8,000 in year 1 and 2 respectively. The property can be sold for Sh, 60,000 at the end of year 2. The required rate of return is 25%. Calculate the BTIRR and advise. (Show your workings to a reasonable extent)

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Answer #1

Based on the given data, pls find below:

YEAR 0 1 2 Terminal
Property - Cash Flows      -50,000           5,000           8,000         60,000
IRR 14.87%

Using IRR (Series of Cash Flows) in Excel, the IRR is calculated above and is 14.87%;

Since IRR is much lower than the Required Rate of Return of 25%, this is not feasible to invest.

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