Your clients, InvestGroup, the owners of City Tower Park, have been approached by other real
estate professionals who want to sell three different properties. Your clients' desired rate of
return is 11% on real estate investments. The following propositions have been made:
Proposition 1
Current Asking Price (Initial Investment): $325,000
???:
Year 1: $31,800
?
Year 2: $33,238
Year 3: $34,725
Year 4: $36,260
Year 5: $37,844
Net sales proceeds at the end of Year 5 are estimated to be $450,000.
1. What is the net present value of this asset? What is the internal rate of return?
2. How does the IRR compare to the investor's required return?
3. Would you advise your client to purchase the asset or pass?
