Question: Please show work and I will give a thumbs up! An investor has projected three possible scenarios for a project as follows: PessimisticNOI will be
Please show work and I will give a thumbs up!
An investor has projected three possible scenarios for a project as follows:
PessimisticNOI will be $200,000 the first year, and then decrease 2 percent per year over a five-year holding period. The property will sell for $1.8 million after five years.
Most likelyNOI will be level at $200,000 per year for the next five years (level NOI) and the property will sell for $2 million.
OptimisticNOI will be $200,000 the first year and increase 3 percent per year over a five-year holding period. The property will then sell for $2.2 million.
The asking price for the property is $2 million. The investor thinks there is about a 30 percent probability for the pessimistic scenario, a 40 percent probability for the most likely scenario, and a 30 percent probability for the optimistic scenario.
Compute the IRR for each scenario.
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