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 (NOI) will be $100,000. It also believes that the cash flow will rise in the amount of $5,000 each year until year 10 and then grow at 3% per year indefinitely (starting in year 11). The investment company believes that it should earn an IRR (required rate of return) of 12%.

Assume that the value of property today is $1,500,000 and 1,700,000 for the next year, what is the current, or going-in, cap rate for this property?

Group of answer choices

6.67%

5.88%

7.00%

7.69%