Your friend is considering buying a property for Sh, 50,000. If purchased the property will be financed
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Question:
Your friend is considering buying a property for Sh, 50,000. If purchased the property will be financed 60% by debt at 15% p.a. payable monthly for 5 years. The property will generate NOI of Sh, 5,000 and Sh, 8,000 in year 1 and 2 respectively. The property can be sold for Sh, 60,000 at the end of year 2. The capital gains tax is 10% on price appreciation and 20% on depreciation recapture. No tax on current income. The required rate of return is 25%. Calculate IRR and advise. (Show your workings) (16 marks)b) Under what circumstance will the following alternatives to property disposition make sense: (i)Refinancing and (ii) Renovation (4 marks)
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