Question
A real estate investor has the opportunity to purchase a small office building which has a tenant on a 5 year lease. The building will
A real estate investor has the opportunity to purchase a small office building which has a tenant on a 5 year lease. The building will cost $250,000. The building will need planned replacement of the heating and air conditioning system in Year 2 of ownership, resulting in a negative cash flow of $5000. The investor plans to hold the building for 5 years and then sell it. Here are the projected annual cash flows, including the original purchase price in Year 0, and the total cash flow in Year 5 including both the net rental income and the anticipated sale price. What is the investor's IRR?
Select one:
a. 8.7%
b. 9.8%
c. 8.1%
d. 6.8%
e. 9.2%
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