An investment company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, the company believes that next years cash flow will be $100,000. It also believes that the cash flow will rise in the amount of $5,000 each year for 10 years and then grow at 2% per year indefinitely. The investment company believes that it should earn an IRR (required rate of return) of 12%.

Assuming that the value of property is expected to appreciate at an annual rate of 3% during the next 10 years, what would be the value for this property today if the resale value is estimated from the expected changes in property value? (Choose the nearest value)

a. $1,174,500

b. $1,823,256

c. $1,242,491

d. $1,197,722