Question: Proposition 2 Current Asking Price (Initial Investment): $1,000,000 Cash Flows: Year 1 $45,000 Year 2 $55,000 Year 3 $70,000 Year 4 $85,000 Year 5 $90,000
Proposition 2
Current Asking Price (Initial Investment): $1,000,000 Cash Flows: Year 1 $45,000
Year 2 $55,000
Year 3 $70,000
Year 4 $85,000
Year 5 $90,000
Net sales proceeds at the end of Year 5 are estimated to be $1,250,000.
What is the net present value of this asset? What is the internal rate of return? How does the IRR compare to the owners required return? Would you advise your client to purchase the asset or pass? If the asking price doesnt meet the required rate of return, what should the clients counter offer be so that the required rate of return would be met?
Proposition 3
Current Asking Price (Initial Investment): $490,000 Cash Flows: Year 1 $38,225
Year 2 $45,000
Year 3 $53,120
Year 4 $58,250
Year 5 $61,000
The net sales proceeds at the end of Year 5 are estimated to be $750,000.
What is the net present value of this asset? What is the internal rate of return? How does the IRR compare to the owners required return? Would you advise your client to purchase the building or pass?
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