Question $4$

A rental house is listed for $$175,000$ and is expected to generate the following cash flows from operations: year $1$:$$12,000$; year $2$:$$12,600$; year $3$ :

$$13,230$; and year $4$:$$13,890($roughly a $5\%$ annual increase$).$ Assume that at the end of year $4,$ the property could be sold to net $$180,000.$ What is the

approximate rate of return $($IRR$)$ to the investor who pays the asking price?

$12\mathrm{.}7\%$

$26\mathrm{.}4\%$

$7\mathrm{.}99\%$

$10\mathrm{.}6\%$

$14\mathrm{.}9\%$