Given the Following Information Regarding an Income Producing Property, Determine

question 3

Multiple Choice

Given the following information regarding an income producing property, determine the internal rate of return (IRR) using levered cash flows. Expected Holding Period: 5 years; 1ˢᵗ year Expected NOI: $89,100; 2ⁿᵈ year Expected NOI: $91,773; 3ʳᵈ year Expected NOI: $94,526; 4ᵗʰ year Expected NOI: $97,362; 5ᵗʰ year Expected NOI: $100,283; Debt Service in each of the next five years: $58,444; Current Market Value: $885,000; Required equity investment: $221,250; Net Sale Proceeds of Property at end of year 5: $974,700; Remaining Mortgage Balance at end of year 5: $631,026.

• A) 10.6%
• B) 12.2%
• C) 22.9%
• D) 33.4%

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Definitions:

Collection Bureau

An agency that pursues payments of debts owed by individuals or businesses, typically for a fee or percentage of the collected debt.

Customer Account

An account held by a business that details the transactions and financial relationship between the business and a specific customer.

Allowance Method

An accounting technique used to estimate and account for potential uncollectible debts.

Bad Debts Expense

Expenses linked to accounts receivable that a firm anticipates will not be collected.