The before-tax cash flow from the sale of the property is

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You are considering the acquisition of an office building. The purchase price is $775,000. Seventy-five percent of the purchase price can be borrowed with a 30-year, 7.5 percent mortgage. Payments will be made annually. Up-front financing costs will total three percent of the loan amount. The expected before-tax cash flows from operations--assuming a 5-year holding period-are as follows:

Year

BTCF

1

$48,492

2

53,768

3

59,282

4

65,043

5

$71,058

The before-tax cash flow from the sale of the property is expected to be $295,050. What is the net present value of this investment, assuming a 12 percent required rate of return on levered cash flows? What is the levered internal rate of return?

Reference no: EM13484702

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