An office building is purchased with the following projected cash flows NOI is expected to be $130,000 in year 1 with 5 percent annual increases The purchase price of the property is $720,000 100 equity financing is used to purchase the property The property is sold at the end of year 4 for $860,00...

a Year 1 Year 2 Year 3 Year 4 Year 5 NOI 130000 136500 ...

An office building is purchased with the following projected cash flows: NOI is expected to be $130,000

Question:

An office building is purchased with the following projected cash flows:

NOI is expected to be $130,000 in year 1 with 5 percent annual increases.
The purchase price of the property is $720,000.
100% equity financing is used to purchase the property
The property is sold at the end of year 4 for $860,000 with selling costs of 4 percent.
The required unlevered rate of return is 14 percent.

a. Calculate the unlevered internal rate of return (IRR).

b. Calculate the unlevered net present value (NPV).

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment...