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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 $9500 annually. A new university is being built in the vicinity and it is expected that the building could be sold for$ 198,000 after 7 years. What is the internal rate of return for this investment?

Solution

VerifiedAnswered 1 year ago

Answered 1 year ago

Step 1

1 of 7**Given:**

- Initial cost $(IC)$: $\$175,000$
- Annual Payments received $(A_P)$: $\$550\cdot 12\cdot 4=\$26,400$
- Annual Expenses $(A_E)$: $\$9,500$
- Salvage Value $(SV)$: $\$198,000$
- Number of years: $7$ years

**Required:**

- Internal rate of return

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