8. Suppose a certain property is expected to produce net operating cash flows annually as follows,...
8. Suppose a certain property is expected to produce net operating cash flows annually as follows, at the end of each of the next five years: P150,000, P160,000, P200,000, P220,000, and P170,000. In addition, at the end of the fifth year we will assume the property will be (or could be) sold for P2,000,000.
a. What is the NPV of a deal in which you would pay P1,800,000 for the property today assuming the required expected return or discount rate is 11% per year? 8 points.
b. If you could get the property for only P1,700,000, what would be the expected IRR of your investment? 8 points.
Show formula and solution.
Homework Answers
Given,
Cash flow year 1 (CF1) = P150000
Cash flow year 2 (CF2) = P160000
Cash flow year 3 (CF3) = P200000
Cash flow year 4 (CF4) = P220000
Cash flow year 5 (CF5) = P170000 + P2000000 = P2170000
Solution :-
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