Proposition 2

Current Asking Price (Initial Investment): $1,000,000 Cash Flows: Year 1 $45,000

Year 2 $55,000

Year 3 $70,000

Year 4 $85,000

Year 5 $90,000

Net sales proceeds at the end of Year 5 are estimated to be $1,250,000.

What is the net present value of this asset? What is the internal rate of return? How does the IRR compare to the owners required return? Would you advise your client to purchase the asset or pass? If the asking price doesnt meet the required rate of return, what should the clients counter offer be so that the required rate of return would be met?

Proposition 3

Current Asking Price (Initial Investment): $490,000 Cash Flows: Year 1 $38,225

Year 2 $45,000

Year 3 $53,120

Year 4 $58,250

Year 5 $61,000

The net sales proceeds at the end of Year 5 are estimated to be $750,000.

What is the net present value of this asset? What is the internal rate of return? How does the IRR compare to the owners required return? Would you advise your client to purchase the building or pass?