Using Excel and Show Work

4) You have uncovered an opportunity to purchase a small retail property leased to a Chicago hotdog stand. The restaurant makes the best cheese fries you have ever tasted, and you think they will be in business for a very long time, but they only have 3 years remaining on their lease. As a result, while you have surmised the stand will be in business for a long time, you deem the investment somewhat risky given the short-term nature of the lease and you are willing to buy the property if you can earn an investment return of 20% (IRR) on your investment.

You plan to underwrite the property very conservatively. The tenant pays net rent (they pay all the operating costs) of $2,500 in the first year, $3,000 in the second year and $3,500 in the 3^rd year. You are assuming the tenant does NOT renew the lease and you would have to sell the property for $7,500, which is less than you paid for it. What is the price you would pay for the property today to generate an 18% IRR on your investment? Hint: We are guessing with trial & error or use Excel function Goal Seek