Response to the following problem:
Jane Foster has estimated the annual after-tax cash flows (ATCFs) and after-tax net proceeds from the sale (CFR) of a proposed real estate investment as noted below for the planned four-year ownership period.
|
Year
|
ATCF
|
CFR
|
|
1
|
$6200
|
|
|
2
|
8000
|
|
|
3
|
8300
|
|
|
4
|
8500
|
$59000
|
The initial required investment in the property is $55 000. Jane must earn at least 14% on the investment.
a. Calculate the net present value (NPV) of the proposed investment.
b. Estimate the yield (to the nearest whole per cent) from the investment.
c. From your findings in parts a and b, what recommendation would you give Jane? Explain.