Question #2:

You and your friend are analyzing a potential duplex (i.e. two attached dwelling units) rental investment. After completing your research, you arrive at the following cash flow forecast:

	Initial Investment	Cash Flow at the end of Year 1	Cash Flow at the end of Year 2	Cash Flow at the end of Year 3
Apartment Building Investment
Purchase	$ (750,000.00)
Rental Income		$ 65,000.00	$ 65,000.00	$ 65,000.00
Sale				$ 920,000.00
Total Cash Flows	$ (750,000.00)	$ 65,000.00	$ 65,000.00	$ 985,000.00

Q2(a). What is the Internal Rate of Return on this investment? Show the exact Excel formula you would use in the specific spreadsheet shown above (noting the columns and rows as labeled) to calculate the IRR. Q2(b). Your friend reports that they came across an alternative condominium with a 30% Internal Rate of Return over the same three-year investment period (much higher than the one you found above). You both agree you only have enough time and energy to take on one of the projects.

Based on the information provided, can you determine which project will be the better investment? If so, which one? If not, why not?