A property has expected future net cash flows of $25,000 per year for the next five years starting one year from now (Year 1 cash flow = 0).After that, the operating cash flow should step up 20% to $30,000 for the following five years.Assume the property sells for $300,000 at the end of year 10.Also assume a 12% required return.

a. How much would you be willing to pay for the property today?

b. Suppose you pay $260,000 for the property.What is your IRR? (Hint:Yr 1 cash flow would be $25,000, not 0)