Question

An apartment building in your neighborhood is for sale for $175,000. The building has four units, which are rented at$550 per month each. The tenants have long-term leases that expire in 7 years. Maintenance and other expenses for care and upkeep are 9500annually.Anewuniversityisbeingbuiltinthevicinityanditisexpectedthatthebuildingcouldbesoldfor9500 annually. A new university is being built in the vicinity and it is expected that the building could be sold for 198,000 after 7 years. What is the internal rate of return for this investment?

Solution

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Answered 1 year ago
Answered 1 year ago
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Given:

  • Initial cost (IC)(IC): $175,000\$175,000
  • Annual Payments received (AP)(A_P): $550124=$26,400\$550\cdot 12\cdot 4=\$26,400
  • Annual Expenses (AE)(A_E): $9,500\$9,500
  • Salvage Value (SV)(SV): $198,000\$198,000
  • Number of years: 77 years

Required:

  • Internal rate of return

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