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# Consider the following information: Purchase Price: 750,000 financed 80% at 7% rate of interest for 25 years (amortized monthly) Remaining After-tax Cash Flow from Operations - year 1: \$33,000 Remain

Consider the following information:

• Purchase Price: 750,000 financed 80% at 7% rate of interest for 25 years (amortized monthly)
• Remaining After-tax Cash Flow from Operations - year 1: \$33,000
• Remaining After-tax Cash Flow from Operations - year 2: \$22,000
• Remaining After-tax Cash Flow from Operations - year 3: \$31,000
• Remaining After-tax Cash Flow from Operations - year 4: \$28,000
• Remaining After-tax Cash Flow from Operations - year 5: \$26,000
• Remaining After-tax Cash Flow from Operations - year 6: \$30,000
• Remaining After-tax Cash Flow from Operations - year 7: \$32,000
1. Calculate the owner's equity (round to nearest dollar).
2. Calculate the financed amount (round to nearest dollar).
3. Scenario A: The investor decides to sell the property at the end of year 4 for \$900,000. Calculate the loan payoff at the point of sale (this is a balloon payment calculation) --- round answer to the nearest dollar.
4. Calculate the IRR under Scenario A (round to tenth of a percent).
5. Scenario B: The investor decides to sell the property at the end of year 7 for \$1,100,000. Calculate the loan payoff at the point of sale (this is a balloon payment calculation) --- round answer to the nearest dollar.
6. Calculate the IRR under Scenario B (round to tenth of a percent).
7. Which alternative Scenario A or Scenario B is probably the most desirable?

Apr 19 2021 View more View Less