Question
4.You have two office-block proposals. You initially intended to invest $300,000 in the building and then sell it at the end of the year for
4.You have two office-block proposals. You initially intended to invest $300,000 in the building and then sell it at the end of the year for $400,000. Under the revised proposal, you planned to rent out the offices for 3 years at a fixed annual rent of $15,000 and then sell the building for $500,000.
a). Calculate the IRR for the initial proposal;
b). Calculate the IRR for the revised proposal;
c). Which proposal should be chosen based on the IRRs of the proposals?
d). Calculate the crossover rate of initial and revised proposals;
e). Suppose that you use NPV rule to rank these two proposals. Which proposal should be chosen if the appropriate discount rate is 10%?
f). Explain why you have same (different) selection(s) in question c) and d).
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