A property could be sold today for $2.30 million. It has a loan balance of $1.60 million and, if sold, the investor would incur a capital gains tax of $310,000. The investor has determined that if it were sold today, she would earn an IRR of 15 percent on equity for the past five years. If not sold, the property is expected to produce after-tax cash flow of $72,425 over the next year. At the end of the year, the property value is expected to increase to $2.40 million, the loan balance will decrease to $945,000, and the amount of capital gains tax due is expected to increase to $315,000. The owner determines that if the property were renovated instead of sold, after-tax cash flow over the next year would increase to $168,450 and the property could be sold after one year for $2.70 million. Renovation would cost $310,000. The investor would not borrow any additional funds to renovate the property.

Required:

a. What is the rate of return that the investor would earn on the additional funds invested in renovating the property?