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please dont answer this question Question 3 An investor is considering two projects, Project A and Project B. Project A involves the investment of $1,309,500
please dont answer this question
Question 3 An investor is considering two projects, Project A and Project B. Project A involves the investment of $1,309,500 in a retail outlet. Rent is received quarterly in arrears for 25 years, at an initial rate of $100,000 per annum. It is assumed that the rent will increase at a rate of 5% per annum compound, but with increases taking place every five years. Maintenance and other expenses are incurred quarterly in arrears, at a rate of $12,000 per annum. The retail outlet reverts to its original owner after 25 years for no payment. Project B involves the purchase of an office building for $1,000,000. The rent is to be received quarterly in advance at an initial rate of $85,000 per annum. It is assumed that the rent will increase to $90,000 per annum after 20 years. There are no maintenance or other expenses. After 25 years the property reverts to its original owner for no payment. (0) Show that the internal rate of return for project A is 9% per annum effective. (ii) Calculate, show all working, the annual effective internal rate of return for Project B. Question 3 An investor is considering two projects, Project A and Project B. Project A involves the investment of $1,309,500 in a retail outlet. Rent is received quarterly in arrears for 25 years, at an initial rate of $100,000 per annum. It is assumed that the rent will increase at a rate of 5% per annum compound, but with increases taking place every five years. Maintenance and other expenses are incurred quarterly in arrears, at a rate of $12,000 per annum. The retail outlet reverts to its original owner after 25 years for no payment. Project B involves the purchase of an office building for $1,000,000. The rent is to be received quarterly in advance at an initial rate of $85,000 per annum. It is assumed that the rent will increase to $90,000 per annum after 20 years. There are no maintenance or other expenses. After 25 years the property reverts to its original owner for no payment. (0) Show that the internal rate of return for project A is 9% per annum effective. (ii) Calculate, show all working, the annual effective internal rate of return for Project BStep by Step Solution
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