Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Contemporary Financial Management

Authors: R. Charles Moyer, William J. Kretlow, James R. Mcguigan

7th Edition

0538877766, 9780538877763

More Books

Students also viewed these Finance questions