Question
Your client is considering purchasing a mixed-use building for $525,000 with a $225,000 down payment and a 30-year $300,000 mortgage with a 7.5% rate (assume
Your client is considering purchasing a mixed-use building for $525,000 with a $225,000 down payment and a 30-year $300,000 mortgage with a 7.5% rate (assume monthly payments). No points or fees will be charged.
The property is fully leased, and lease income will be as follows:
- Year 1: $51,200
- Year 2: $59,400
- Year 3: $63,700
- Year 4: $67,300
- Year 5: $72,100
- Year 6: $75,542
Operating expenses will be $25,400 in Year 1 and are expected to increase by 5% annually.
After five years, your client intends to sell the property. He intends to establish the sale price by capitalizing the 6th year NOI at 10%. He has suggested using a cost of sale estimate of 4%.
Perform a cash flow analysis for this property, rounding all figures to the nearest dollar. What is the internal rate of return (IRR)?
Select one:
a.
4.92%
b.
-4.92%
c.
21.77%
d.
12.19%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started