Question
A development site can be acquired for $2,000,000 (including acquisition costs) and is projected to have the following cash flows (assume at the end of
A development site can be acquired for $2,000,000 (including acquisition costs) and is projected to have the following cash flows (assume at the end of each year):
cost income
year1: - $ 700,000 $0
year2: - $ 1,250,000 $ 1,000,000
year3: - $ 2,000,000 $ 3,500,000
year4: - $ 1,000,000 $ 4,250,000
a, If the client's required rate of return is 20%, what is maximum amount they could afford to pay for the site (including acquisition costs)
b, Calculate the Internal Rate of Return (IRR) that the client would achieve if the site is purchased for $2,000,000 (including acquisition costs)
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