Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a new residential income producing property for sale to a potential investor. The sale price for the property is Sh. 1,250,000 and will be

Consider a new residential income producing property for sale to a potential investor. The sale

price for the property is Sh. 1,250,000 and will be depreciated over 30 years on a straight-line

basis. Rent is estimated at Sh. 200,000 in the first year and is expected to grow at 3% p.a.

thereafter. Vacancies and collection losses are expected to be 10% of rent. Operating expenses

will be 31.5% of rent. A 70% mortgage loan can be obtained at 11% p.a. payable monthly for

30 years. The property is expected to appreciate at 3% per year and is expected to be owned

for five years and then sold. Capital gains tax rate of 15% is the only applicable tax.

Required

Calculate the expected IRR on equity invested. Is this investment viable if required rate of

return is 12%?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Derivatives Markets

Authors: Robert McDonald

3rd Edition

978-9332536746, 9789332536746

More Books

Students also viewed these Finance questions

Question

What does the term homoscedasticity mean?

Answered: 1 week ago

Question

Quadrilateral EFGH is a kite. Find mG. E H Answered: 1 week ago

Answered: 1 week ago

Question

=+Why do you think WinCo added this statement?

Answered: 1 week ago