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You are thinking about buying an investment property in Florida for $150,000 today. You expect to earn $10,000 per year of net rental income (after costs, such as property tax, HOA and maintenance, etc.) on the property and you expect to sell it in 5 years for $200,000. If the annual discount rate is 8%, is this investment attractive to you?
Please show the calculations that support your decision.
(a) What is the net present value of this investment? Is this a good investment based on the net present value decision rule?
(b) What is the IRR for this investment? What decision would be reached based on the IRR decision rule?
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