Question
You are considering the acquisition of a small office building. The purchase price is Kshs. 775,000. 75% of the purchase price can be borrowed with
You are considering the acquisition of a small office building. The purchase price is Kshs. 775,000. 75% of the purchase price can be borrowed with a 30-year, 7.5% mortgage payable annually. The expected Net operating income from operations assuming a 5-year holding period are as follows;
Year | NOI |
1 | 97,707 |
2 | 102,983 |
3 | 108,497 |
4 | 114,258 |
5 | 120,273 |
The before tax cash flow from the sale of the property is expected to be Kshs.295,050
Required:
i) Calculate before tax IRR on equity. (15 marks)
ii) Should the property be purchased (4 marks)
iii) What are the alternative to property disposition. (6 marks)
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