Question
The cash flows below contain the cash flows from a completed real estate investment analysis. Based on the information in the cash flows what is
The cash flows below contain the cash flows from a completed real estate investment analysis. Based on the information in the cash flows what is the internal rate of return of the before-tax unlevered cash flows?
Purchase Price | $4,569,231 |
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Loan Amount | $3,198,462 |
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| Year 1 | 2 | 3 | 4 | 5 |
Leasable Space | 30,000 | 30,000 | 30,000 | 30,000 | 30,000 |
Average Rent | $20 | $21.00 | $22.05 | $23.15 | $24.31 |
Potential Gross Income | $600,000 | $630,000 | $661,500 | $694,575 | $729,304 |
Vacancy and Collection Losses | 10% | 10% | 10% | 10% | 10% |
| ($60,000) | ($63,000) | ($66,150) | ($69,458) | ($72,930) |
Effective Gross Income | $540,000 | $567,000 | $595,350 | $625,118 | $656,373 |
Operating Expenses | 40% | 40% | 40% | 40% | 40% |
| ($216,000) | ($226,800) | ($238,140) | ($250,047) | ($262,549) |
Capital Expenditures | 5% | 5% | 5% | 5% | 5% |
| ($27,000) | ($28,350) | ($29,768) | ($31,256) | ($32,819) |
Net Operating Income | $297,000 | $311,850 | $327,443 | $343,815 | $361,005 |
Annual Debt Service | ($291,581) | ($291,581) | ($291,581) | ($291,581) | ($291,581) |
Before-Tax Cash Flow | $5,419 | $20,269 | $35,861 | $52,233 | $69,424 |
Future Selling Price | $5,615,639 |
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Selling Expenses | 3% ($168,469) |
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Net Sale Proceeds | $5,447,170 |
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Amount Outstanding | ($2,620,301) |
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Before-Tax Equity Reversion | $2,826,869 |
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Question options:
| a. 9.84% |
| b. 10.66% |
| c. 10.25% |
| d. 11.28% |
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