You have the opportunity to buy a piece of land with your brother-in-law, Joseph Wheeler Dealer. The land can be purchased for $1,000,000 and Joseph is 100% positive that it can be sold for $1,500,000 in 7 years. In fact, he will guarantee this sale price (assume the $1,500,000 sale price is actually achieved). As he says, "this is a no-brainer 50% return." What do you think the actual returns will be? The property is in Miami-Dade County Florida and needs to be fenced. You might also need liability insurance. You can pay cash or finance the project (easier to model a cash transaction). The cleanest assumption is to assume no debt. (There are no "tricks' to this, you just need to an investment analysis and think about all fees, income and costs associated with transaction). Do you have all the holding costs? use excel program. This requires TVM calculations! IRR? Is this a 50% return? Or is that golf club accounting? Think of all the costs, the TMV and estimate annual return (IRR) for this type of investment.

Let's assume that: 

A) closing cost is $20,000. 

B) sale commission is 6%. 

C) Taxes is $25,000 and 

D) insurance is $10,000.

Do the cash flow by year then calculate the IRR.

Answer rating: 100% (QA)

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