Assume that you purchase a property for $200,000 and it generates annual cash flows of $30,000 in years 1-3; and $45,000 in years 4&5. You are able to sell it at the end of year 5 for $400,000. Calculate the IRR for this investment property.

Assume that you purchase a property for $200,000 and it generates annual cash flows of $30,000 in years 1-3; and $45,000 in years 4&5. You are able to sell it at the end of year 5 for $400,000. Calculate the IRR for this investment property.

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter16: Real Estate And High-risk Investments

Section: Chapter Questions

Problem 1FPC

See similar textbooks

Related questions

Q: difference between Money and capital markets.

A: Financial Market: An exchange where buyers and sellers meet to trade financial assets such bonds,…

Q: Canuck Oil Corporation is a Canadian crude oil producer. Today is July 15. Canuck’s estimated oil…

A: 1. Canuck Oil is producer of oil. If the prices of oil keeps fluctuating then they won't be able to…

Q: An investor needs $17,000 in 13 years. (a) What amount should be deposited in a fund at the end of…

A: Amount needed " FV" is $17,000 Time period is 13 years Interest rate is 7% Compounded Quarterly To…

Q: The following represents the stockholder’s equity account of Security Data Company: 0 R…

A: As per the given information: Preferred stock R200,000 Common stock (R4 par) R200,000…

Q: The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for…

A: The company evaluates the projects based on cost and benefits. When a company has several options…

Q: QUESTION B1 An investor is holding a portfolio which comprises £4 million of Bond A and £6 million…

A: Note: Parts a and b have been solved below.

Q: Central Banks are in fact not at fault when it comes to turning economy into recession and…

A: Each country has its own central bank and a country’s central bank has the power to control that…

Q: WHAT'S THE ANSWER TO D, E AND F?

A: Given, Net nonoperating obligations (NNO) Return on equity (ROE) Nonoperating return component of…

Q: Use the following information to answer this question. Windswept, Inc. 2017 Income Statement ($…

A: Equity multiplier is a ratio calculated to use see the company used it for how much assets are used…

Q: Outline the recognition criteria for the following elements of financial statements:

A: Assets are measured by accumulation of equity and liabilities. Some eg are, land, property, cash…

Q: d. Discuss whether Galina Works should avoid exchange rate risk by invoicing foreign customers in…

A: Foreign Exchange Risk: The risk of an abnormal loss or gain that accrues to a company on their…

Q: 25. Explain what it means in general when we say arisk-averse decision maker is willing to give up…

A: A risk-averse investor prefers lesser earnings with known hazards to larger returns with unknown…

Q: c). If the father decides to deposit a single amount now instead of K300 at the end of each month,…

A: Data given: FV= k 24,500.90 [as computed in (a) ] r=12% p.a. (assumed compounded annually) n= 17-12…

Q: What is the profitability index for an investment with the following cash flows given a 20 percent…

A: The Profitability Index(PI) is one of the capital budgeting techniques that take into consideration…

Q: A credit union is an example of: Select one: a.

A: A credit union is an important type of financial institution. It is very much similar to a…

Q: Are you agree with the phrase (sentence): "In the following case, person who prefer project B to…

A: ENPV of Project A is 100 ENPV of project B is 120 Standard deviation of Project A is 15 Standard…

Q: ce-eamin a. What price would you expect Underwood Motors shares to sell for? b. What is the book…

A: Information Provided: Book value = $1,319,000 Net Income = $586,000 Earnings per share = $0.306 P/E…

Q: Dividend Policy The following represents the stockholder's equity account of Security Data Company:…

A: Given, preferred stock R200,000 Common stock R200,000

Q: 1. What is the future worth of a series of equal yearly deposits of Php 100,000 for 8 years in a…

Q: berto opened a savings account for his daughter and Dosited $800 on the day she was born. Each year…

A: The future value of the annuity includes the amount being deposited and amount of compounded…

Q: Small Ltd acquired a portfolio of corporate bonds on 1 July 2019. The bonds will generate…

A: The issuer of bonds is the borrower and the holder is the lender. The bondholder will also receive…

Q: The amount a person would have to deposit today (present value) at a 5 percent interest rate to have…

A: Information Provided: Interest rate = 5% Future value = $1000 Period of deposit = 5 years

Q: Required information Assume you pay the reduced amount of $4,670 for a corporate stock that has a…

A: This is a time value concept based question. All the relevant information are given. Timing and…

Q: Consider the following information: Cash Flows ($) Project C0 C1 C2 C3 C4 A –5,300 1,300 1,300…

A: (Note: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the…

Q: 5. Evaluate the net present values of the following streams of income: V = $100 per year in…

A: An annuity is a contract where the holder gets a fixed periodic payment for a predetermined period…

Q: There is an exchange rate of 3 unicorns for 4 leprechauns. If you have 15 unicorns, how many…

A: Exchange rate of 3 unicorns = 4 leprechauns Exchange rate of 1 unicorn = 43 leprechauns

Q: OPTIMAL CAPITAL STRUCTURE Terrell Trucking Company is in the process of setting its target capital…

A: Optimal capital structure is referred to as that perfect mix of debt and equity that maximizes a…

Q: Commercial Spreads O The margin over US Treasuries used to determine the rate O The difference…

A: Commercial spread is an important indicator in commercial mortgage economy in a country and is…

Q: Find the future value of this loan. $15,458 at 6.7% for 6 months

A: Intreast rate for 6 months =6.7×6/12=3.35%

Q: Determine the interest earned on $5000 deposited in a savings account, for 10 years, based on one of…

A: As per Bartleby guidelines,If a question with multiple sub-parts are posted, first 3 sub-parts will…

Q: Find the effective annual rate associated with an 8% nominal rate when interest rate is compounded…

A: The effective annual rate is referred to as the true interest rate on any interest-paying investment…

Q: Find the APY corresponding to the following nominal rate. 9% compounded quarterly The APY is %.…

A: APY stands for annual percentage yield. Formula for APY= (1+rn)n -1 where r= rate n= number of…

Q: Are transactions recorded on a fiscal‐year basis or a calendar‐year basis? Does it have to be one or…

A: Fiscal year is a 12 months period, which normally starts from Apr 1 to Mar 31 of next year. Calendar…

Q: Suppose you deposit $1098 into an account 5 years from today that earns 11%. It will be worth $1774…

A: Data given: PV= $ 1098 FV= $ 1774 r=11% n=?

Q: [Determination of Selling Price] Question 18: The following data are obtained from the records of a…

A: Please see below attached file.Thank you. As per bartleby guidelines we are allowed to do only 3…

Q: What is ‘basis’ and what is ‘basis risk’ within the context of futures hedging. Briefly discuss what…

A: Future markets are derivative products that means they derive the prices from the underlying assets…

Q: Find the future value of this loan. $13,842 at 5.7% for 13 months

A: Principle value=13,842 Intreast rate =5.7%

Q: Case, Part 2: Suppose you decide that you will not submit an application for an ARM due to Velma’s…

A: Adjustable rate mortgage or ARM is also known by the name variable rate mortgages. Under the…

Q: . Jane Muyaule has been given an opportunity to receive K20,000, six years from now. If she can earn…

A: B) In this question we are given Future value which is the amount Jane will receive after 6 years as…

Q: - a future market transaction - a secondary market transaction -it is primary market transaction…

A: A security market is a place where security( stock and bond) is traded. Here price of the security…

Q: 2. Convert 12% compounded semi-annually to "r" compounded quarterly.

A: We need to use effective annual rate formula to calculate Effective rate =1+rnn -1 where r=nominal…

Q: In 2014, Gap completed $1.5 billion in share buybacks, and its stock went up by 6%. Which of the…

A: Share repurchase is a corporate action where the Company buys back a certain number of shares…

Q: Pro-Forma Income Statement Sales Cost of goods sold Gross profit Operating expenses Net operating…

A: calculation of cost of goods sold = 62% of 14800000 = $ 9176000 calculation of sales and operating…

Q: Why did the analysts add back stock expenses to get to free cash flows?

A: Stock Compensation: It is a method used by companies to motivate employees by paying them with…

Q: When you purchase a home by securing a mortgage, the total paid toward the principal is your equity…

A: Time Period = 30 Years Frequency = Monthly Payment (360)

Q: Share Valuation A. Giant Growth Co. is growing fast. Dividends are expected to grow at a 20% growth…

A: Here, To Find: Part A. Intrinsic value of stock =? Part B. Decision to buy at the current market…

Q: An option trader has built a portfolio of three different call options on the same underlying with…

A: Call option give the buyer the right but not the obligation to buy at strike price. This option is…

Q: Karl Yates needs $6,000 to pay for the remodeling work on his house. A contractor agrees to do the…

A: Present Value refers to the discounted value of a single cash flow or multiple cash flows today…

Q: The following certificate of deposit (CD) was released from a particular bank. Find the compound…

A: Principal amount is $2500 Interest rate is 6% Compounded daily Time period is 2 years To Find:…

Q: Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In…

A: Given: Particulars Amount Service amount $35,000 Marginal tax rate 37% After tax rate of…

Concept explainers

Cash Flow Statement Analysis

A company's cash flow is the movement of its cash inflows and cash outflows. A cash flow statement is prepared to determine changes in an organization's cash position. A cash flow statement shows how much money was generated and spent on the business during the fiscal year. The cash flow analysis is a method of analyzing an organization's investing, financing, and operating activities. A cash flow statement reveals an organization's liquidity and solvency, as well as its ability to change cash flows in the future. It eliminates the other effects of accounting methods by improving the comparability of different organizations' operational performance.

Question

100%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Follow-up Questions

Read through expert solutions to related follow-up questions below.

Follow-up Question

Thanks for the detailed solution. But I am still getting an incorrect answer. The calculator that I'm using is the HP 10bII+ Financial Calculator and no matter how I enter the values, it doesn't seem to work. Is it possible to get a step by step tutorial of that calculator using the IRR problem?!

Solution

by Bartleby Expert

SEE SOLUTION

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

You paid $725,000 for a duplex and financed 75% of the purchase price. Your forecasted cash flows for the property are listed below and you expect to sell the property for $740,000 at the end of year 5 and you owe $499,318.73 on the property. What is your expected internal rate of return? Cash flow - year 1 $16,000 Cash flow - year 2 $17,000 Cash flow - year 3 $16,000 Cash flow - year 4 $15,000 Cash flow - year 5 $18,000 Answer should be formatted as a percent with two decimal places.
Suppose an investor is interested in purchasing the following income producing property at a current market price of $ 1,490,000. The prospective buyer has estimated the expected cash flows over the next five years to be as follows: Year 1 = $88,000, Year 2 = $90,662, Year 3 = $91,923, Year 4 = $95,778, Year 5 = $97,000. Assuming that the required rate of return is 15% and the estimated proceeds from selling the property at the end of year five is $1,860,000, what is the NPV of the project? What is the IRR of the project?
The direct capitalization method can be used to quickly value a building. You are evaluating a property that produces gross rent of $524,000 per year with an expected NOI of $247,000 per year. Similar properties have traded with a cap rate of 4.5% and and a GIM of 8.5. What is the value of the subject property based on the direct capitalization method?
You are planning to invest in three mutually exclusive investment projects, A, B and C, which have the following after-tax cash flows: Cash Flow, per year ($) Investment 0 1 2 3 4 Thereafter A (12,000) 5,000 5,000 5,000 5,000 50 B (12,000) 0 0 0 20,000 50 C (12,000) 5,000 5,000 11,000 11,000 50 Assume that your required rate of return is 6.5 percent: Apply the present-value technique to assess the acceptability of each investment.
Assume that property investor expects NOI to be $55 000, $64 000 and $67 000 for next 4 years with capitalisation rate of 11%, holding period expected to be 32 years with annual appreciation of 3% and sale commission of 6%. Would you buy the property if owners would like to sell it for $520 000?
Assume that you are valuing an infinitely lived asset that pays $350 at the end of each year. What is the present value of the asset if the opportunity cost of funds is 3%?
You have been asked to estimate the market value of an income-producing property. The table below provides 5 years of projected cash flows for the property. Use the discounted cash flow approach to income valuation to calculate the market value. Assume that you sell the property at the end of year 5 and that the net proceeds from the sale are $5 million. Also assume that the discount rate is 10%. PGI EGI NOI Year 1 $4.18 million $750,000 $780,000 $811,200 $637,500 $663,000 $689,520 $318,750 $331,500 $344,760 $6.11 million $4.12 million Year 2 $4.40 million Year 3 Year 4 $843,648 $717,101 $358,550 Year 5 $877,394 $745,785 $372,892
You are offered an asset that costs $150,000 and has cash flows of $1,350 at the end of every month for the next 6years. Assume the cost of capital is 9percent per year.a. What is the IRR of the asset?b. What is the NPV of the asset? c. If your cost of capital is 12percent, should you purchase it? (Setup cash flows in Excel spreadsheets and uses the following Excel Financial functions, IRR, and NPV to derive your answers.
A Property is expected to have 5 Year NOI flow of $10,000, $12,000, $15,000, $18,000, and $10,000 and a final (year 5) sale price of $90,000. Using capitalization rate of 12% what is the estimated market value of the property? 97,354 104,664 87,641 100,919 90,724
Let us assume that an investor can obtain an 80% LTV loan for a property valued at 500,000 at a 10% interest rate to be amortized over 25 years with monthly payments. If the property generates $70,000 net operating income per year, answer the following. What would be the Before-Tax Cash Flow from the Property Sale (BTCFs) if the property were sold in Year 5 for $440,000? $63,344.93 $816,655.07 $396,382.36 $440,000.00
A piece of property is to be purchased at $305,000 for mining a precious metal. The annual net income of the mining operation will be $100,000 for 10 years. At the ten of the 10 years, the property will be restored into a park at a cost of $750,000 more than the resale value of the property after it is restored .a. Draw a cash flow diagram for this investment, using a 10% Interest rate.b. Determine whether the project is desirable
A tract of land is expected to net $45 per acre from now into the foreseeable future. Assume that your opportunity cost is 6% or 0.06 and that your cost of borrowed funds is 5% or 0.05. You are required to repay any borrowed funds over a 30 year period with 30 equal annual payments. Assume that you have $250,000 to invest in land. Determine: • The maximal price you could pay for the land and still generate a rate of return equal to your opportunity cost. • The minimal per-acre down payment required if the investment is to "cash flow" in the first year. • The maximal number of acres you can purchase and meet the lender's "cash-flow" requirements. Please show all work without using excel. Thank you!