Suppose that you what is the a a property 5 years ago for $100.000. If you just

Question

Suppose that you what is the a a property 5 years ago for $100.000. If you just sold it for $140.255 annual appreciation rate? 4% 5% 6% 07% 08% D | Question 4 10 pts A rental house is listed for $175,000 and is expected to generate the following cash flows from operations: year 1: $12,000; year 2: $12,600; year 3: $13.230; and year 4: $13,890 (roughly a 5% annual increase). Assume that at the end of year 4, the property could be sold to net $180,000 What is the approximate rate of return (IRR) to the investor who pays the asking price? 012.7% 26.4% 7.99% 10.6% 14.9%

Explanation / Answer

1. Annual appreciation rate= (140,255/100,000)^(1/5)-1=7%

2.

IRR is calculated using the IRR formula in excel

Year 0 Year 1 Year 2 Year 3 Year 4 Cash Flows -175000 12000 12600 13230 193890 IRR 8%

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