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Suppose an investor is interested in purchasing the following income producing property at a price of $450,000. The investor has estimated the expected cash flows over the next four years to be as follows: Year 1 = $40,000, Year 2 = $45,000, Year 3 = $50,000, Year 4 = $55,000. Assuming that the estimated proceeds from selling the property at the end of year four is $500,000, what is the IRR of the project?

Respuesta :

The IRR of the undertaking is $9,889.56

A metric used in financial analysis to estimate the profitability of potential investments is the internal rate of return (IRR). In a discounted cash flow analysis, the IRR is a discount rate that sets the net present value (NPV) of all cash flows at zero. The NPV and IRR calculations use the same formula.

The following is how the NPV is calculated:

= initial investment x present value of future cash flows The following formula is used to calculate present value:

= Future value / (1 + r)n the following formula is used to calculate the NPV:

= $ 9,889.56 - $ 450,000 + $ 40,000 / 1.12 + $ 45,000 / 1.122 + $ 50,000 / 1.123 + $ 55,000 / 1.124 + $ 500,000 / 1.124

To learn more about IRR here

https://brainly.com/question/14120890

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