You recently bought a single-family investment property for $276,000 with a fixed interest rate mortgage loan with an initial balance of $125,000, 3.55% annual nominal interest rate, and a 10-year fully amortizing loan term. Cash flow after debt service and before tax is estimated to be as follows:

Year 1: $6,500

Year 2: $6,750

Year 3: $7,000

You expect a three-year holding period and that youll be able to sell the investment for $300,000 three years from today. What do you estimate for the leveraged before tax IRR and how IRR is partitioned between cash flow from operations and cash flow from the sale? Use annual compounding or discounting to solve this problem.

Answer Choices:

a) 5.20% with cash flow from operations representing 6.63% and cash flow from the sale representing 93.37%5.20% with cash flow from operations representing 6.63% and cash flow from the sale representing 93.37%

b) 15.29% with cash flow from operations representing 10.12% and cash flow from the sale representing 89.88%

c) 5.20% with cash flow from operations representing 93.37% and cash flow from the sale representing 6.63%

d) 15.29% with cash flow from operations representing 89.88% and cash flow from the sale representing 10.12%