Question: Bezie Foster has estimated the annual after-tax cash flows and after-tax net proceeds from sale (CFR) of a proposed real estate investment as noted below for the planned 4-year ownership period.
Year ATCF CFR
1 $6,200
2 $8,000
3 $8,300
4 $8,500 $59,000
The initial required investment in the property is $55,000. Bezie must earn at least 14% on the investment.
a. Calculate the net present value of the proposed investment.
b. Estimate the IRR (to the nearest whole percentage point) from the investment. c. From your findings in parts a and b, what recommendation would you give Bezie? Explain.