DO NOT USE EXCEL OR FINANCIAL CALCULATOR

You are considering the acquisition of a small office building. The purchase price is Kshs.775,000. 75% of the purchase price can be borrowed with a 30-year, 7.5% mortgage payable annually. The expected Net operating income from operations assuming a 5-year holding period are as follows: Page 1 of 2 Year NOI 1 97,707 2 102,983 3 108,497 4 114,258 5 120,273 The before tax cashflow from the sale of the property is expected to be Kshs.295,050 Required: i) Calculate before tax IRR on equity. (15 marks) ii) Should the property be purchased (4 marks) What are the alternative to property disposition. (6 marks) [Total: 25 marks] You are considering the acquisition of a small office building. The purchase price is Kshs.775,000. 75% of the purchase price can be borrowed with a 30-year, 7.5% mortgage payable annually. The expected Net operating income from operations assuming a 5-year holding period are as follows: Page 1 of 2 Year NOI 1 97,707 2 102,983 3 108,497 4 114,258 5 120,273 The before tax cashflow from the sale of the property is expected to be Kshs.295,050 Required: i) Calculate before tax IRR on equity. (15 marks) ii) Should the property be purchased (4 marks) What are the alternative to property disposition. (6 marks) [Total: 25 marks]