4 February, 18:00

# Suppose you purchased an income producing property for \$95,000 five years ago. In Year 1, you were able to negotiate a lease that paid \$10,000 per year at the end of each year. If you are able to sell the property at the end of year 5 for \$100,000 (after receiving our final lease payment), what was the internal rate of return (IRR) on this investment

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1. 4 February, 18:22
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The internal rate of return of this investment is 9.57%

Explanation:

we already told that the property investment was \$95000 initially then the the value of the property appreciated to \$100000 in 5 years so we will use both these amounts to get what is the rate of return in this investment so we will use the future value formula:

Fv = Pv (1+i) ^n

where Fv is the future value of the investment \$100000 + \$50000=\$150000 (we also considered the lease amount of \$10000 per year for 5 years which is \$50000)

Pv is the present value of the investment \$95000

IRR is the internal rate of return for the investment which we will calculate

n is the period of 5 years in which the investment was done in

therefore we will substitute the above mentioned values to the formula also mentioned above and solve for IRR:

150000 = 95000 (1+IRR) ^5 then we divide by 95000 both sides

150000/95000 = (1+IRR) ^5 then we get the 5th root of both sides

1.095654258 = 1 + IRR then we subtract 1 from both sides

0.095654258 = IRR then we multiply by 100 for a percentage

9.57% = IRR which this is the internal rate of return for the investment. rounded off to two decimal places.