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Lady Gaga is purchasing an office building with the following projected cash flows: NOI is expected to be $130,000 in year 1 with 5 percent

Lady Gaga is purchasing an office building with the following projected cash flows:

NOI is expected to be $130,000 in year 1 with 5 percent annual increases.

The purchase price of the property is $720,000.

100% equity financing is used to purchase the property

The property is sold at the end of year 4 for $860,000 with selling costs of 4 percent.

The required unlevered rate of return is 14 percent.

Lady Gaga comes to you for help.

Calculate the unlevered internal rate of return (IRR)

  • A.

    12.88%

  • B.

    5.35%

  • C.

    21.88%

  • D.

    13.88%

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