A real estate property has the following expected cash flows: YEAR CASH FLOW 0 -$94,117.00 1...
A real estate property has the following expected cash flows: YEAR CASH FLOW 0 -$94,117.00 1 $10,661.00 2 $25,700.00 3 $50,470.00 4 $38,629.00 The investor wants to earn at least 10.00% on any real estate property. Based on the IRR of this investment, should the investor purchase this property? (YES OR NO)
Homework Answers
Let irr be x%
At irr,present value of inflows=present value of outflows.
94117=10661/1.0x+25700/1.0x^2+50470/1.0x^3+38629/1.0x^4
Hence x=irr=10.46%(Approx).
Hence since irr is greater than the required return;purchases must be made.
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