Your client is about to purchase an investment property and would like to acheive a discount...

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Your client is about to purchase an investment property and would like to acheive a discount rate of 9%. Sales research indicates that similar properties are acheiving a capitalisation rate of 6.5%. The property produces the following yearly cash flow: 1 2 3 4 LO 5 6 8 $187,000 $245,000 $260,000 $293,000 $305,000 $347,000 $388,000 $401,000 (a) What is the Net Present Value of the subject property? (b) If your client pays 2.5 million dollars for this investment at time "zero" what will their NPV be at a discount rate of 9%? What will be the revised IRR? (10 Marks) Your client is about to purchase an investment property and would like to acheive a discount rate of 9%. Sales research indicates that similar properties are acheiving a capitalisation rate of 6.5%. The property produces the following yearly cash flow: 1 2 3 4 LO 5 6 8 $187,000 $245,000 $260,000 $293,000 $305,000 $347,000 $388,000 $401,000 (a) What is the Net Present Value of the subject property? (b) If your client pays 2.5 million dollars for this investment at time "zero" what will their NPV be at a discount rate of 9%? What will be the revised IRR? (10 Marks)

Answer rating: 100% (QA)

To calculate the Net Present Value NPV of the subject property we need to discount the future cash flows to their present value using the discount rate The formula to calculate the NPV is as follows N... View the full answer