8.53 a & b Suppose a certain property is expected to produce net operating cash

Question

8.53 a & b Suppose a certain property is expected to produce net operating cash flows annually as follows, at the end of each of the next five years: $15,000, $16,000, $20,000, $22,000 and $17,000. In addition, at the end of the fifth year we will assume the property will be (of could be) sold for $200,000.

a. what is the NPV of a deal in which you would pay $180,000 for the property today assuming the required expected return or discount rate is 11% per year?

b. if you could get the property for only $170,000, what would be the expected IRR of your investment?

how do I do this all in excel?

Explanation / Answer

Initial Investment -$180,000.00 Rate 11.00% Year Cash Flow 1 15000 2 16000 3 20000 4 22000 5 217000 NPV $4,394.32 NPV(Rate,Cash inflow)+Initial Investment NPV(11% ,Cash inflows(yr 1 to 5)) + (-$180000) Year 5 Cash Flow = $17000 + $200,000 $217,000.00 Year Cash Flow 0 -$170,000.00 1 15000 2 16000 3 20000 4 22000 5 217000 IRR = IRR(Cashflow year 0 : Cashflow year 5) 13.15%

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