Calculate the expected return (IRR) for each option using these additional assumptions. Clue: Use the IRR function in MS Excel. Annualize IRRs using compounding.

Legal Actions Option The duration of the foreclosure process is three months. The legal and administrative costs associated with the foreclosure are $50,000 due at the end of the foreclosure (i.e., three months from today). The duration of the subsequent sale process is nine months. The legal and administrative costs associated with the subsequent sale are 5% of the sale price, due at sale (i.e., twelve months from today). The proceeds from the sale (one year from today) are $953,931.10, which is $1,004,138, less a 5% sales commission. No significant costs are associated with the environmental liabilities of the property. There are no cash flows from the deficiency judgement, and the cash flows before the eventual sale of the property (i.e., rents, maintenance, and capital expenditures) are zero. Determine the cashflows and their timeline, and calculate the IRR:

Discounted Payoff Option The current value of the property is $982,259. An LTV of 75% yields a book value for the new loan of $736,694.61. The completion of the discounted payoff takes three months. Determine the cashflows and their timeline, and calculate the IRR:

Loan Sale Option The buyer is willing to pay up to 80% LTV based on the value of Burton managing the property. The current value of the property is $982,259 implying a loan sale at a price of $785,807.58. The completion of the loan sale takes six months. Determine the cashflows and their timeline, and calculate the IRR:

\begin{tabular}{|l|r|r|r|r|r|} \hline \multicolumn{7}{|l|}{ Cash Flows and IRR for Foreclosure } & & \\ \hline \multicolumn{7}{|c|}{ Now } & Three Months & \multicolumn{1}{|c|}{ Six Months } & Nine Months & Twelve Months \\ \hline Cash flow & (465,000) & (50,000) & 0 & 0 & 953,931 \\ \hline Annual IRR & 87.89% & & & & \\ \hline \end{tabular} Cash Flows and IRR for Discounted Payoff \begin{tabular}{l|r|r|} \hline & \multicolumn{1}{|c|}{ Now } & Three Months \\ \hline Cash flow & (465,000) & 736,695 \\ \hline Annual IRR & 530.00% & \\ \hline \end{tabular} Cash Flows and IRR for Loan Sale \begin{tabular}{l|r|r} \hline & Now & Six Months \\ \hline Cash flow & (465,000) & 785,508 \\ \hline Annual IRR & 185.36% & \\ \hline \end{tabular}