BECE Developments is considering purchasing a small commercial building located in Prince George that will cost $800,000 and will require $125,000 in renovations immediately. Revenue from rent is estimated to be $200,000 a year. Expenses are estimated to be $50,000 a year. The company plans to keep the building for 6 years and estimates they will be able to sell the building for 25% more than the original purchase price. BECE wants to earn at least 20%. Assume expenses occur at the beginning of the year and revenue at the end of the year. What is the IRR? Question 5 options: IRR=16.24%, earn possitive return, yes, invest IRR=16.24%, less than required 20%, not invest IRR=-8.15%, earn negative return, not invest IRR=16.06%, earn possitive return, yes, invest
BECE Developments is considering purchasing a small commercial building located in Prince George that will cost $800,000 and will require $125,000 in renovations immediately. Revenue from rent is estimated to be $200,000 a year. Expenses are estimated to be $50,000 a year. The company plans to keep the building for 6 years and estimates they will be able to sell the building for 25% more than the original purchase price. BECE wants to earn at least 20%. Assume expenses occur at the beginning of the year and revenue at the end of the year. What is the IRR? Question 5 options: IRR=16.24%, earn possitive return, yes, invest IRR=16.24%, less than required 20%, not invest IRR=-8.15%, earn negative return, not invest IRR=16.06%, earn possitive return, yes, invest
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
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BECE Developments is considering purchasing a small commercial building located in Prince George that will cost $800,000 and will require $125,000 in renovations immediately. Revenue from rent is estimated to be $200,000 a year. Expenses are estimated to be $50,000 a year. The company plans to keep the building for 6 years and estimates they will be able to sell the building for 25% more than the original purchase price. BECE wants to earn at least 20%. Assume expenses occur at the beginning of the year and revenue at the end of the year.
What is the IRR ?
Question 5 options:
IRR=16.24%, earn possitive return, yes, invest
IRR=16.24%, less than required 20%, not invest
IRR=-8.15%, earn negative return, not invest
IRR=16.06%, earn possitive return, yes, invest
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