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An investor has projected three possible scenarios for a project as follows: Pessimistic-NOI will be $285,000 the first year, and then decrease 2 percent per
An investor has projected three possible scenarios for a project as follows: Pessimistic-NOI will be $285,000 the first year, and then decrease 2 percent per year over a five-year holding period. The property will sell for $2.14 million after five years. Most likely-NOI will be level at $285,000 per year for the next five years (level NOI) and the property will sell for $2.85 million. Optimistic-NO/ will be $285,000 the first year and increase 3 percent per year over a five-year holding period. The property will then sell for $3.90 million. The asking price for the property is $2.85 million. The investor thinks there is about a 30 percent probability for the pessimistic scenario, a 40 percent probability for the most likely scenario, and a 30 percent probability for the optimistic scenario. Required: a. Compute the IRR for each scenario. b. Compute the expected IRR. c. Compute the variance and standard deviation of the IRRs. Compute the IRR for each scenario. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Complete this question by entering your answers in the tabs below. Compute the expected IRR. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Complete this question by entering your answers in the tabs below. Compute the variance and standard deviation of the IRRs. Note: Do not round intermediate calculations. Round "Variance" to 4 decimal places and "Standard deviation" to 2 decim places
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