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
Calculate the owner's equity (round to nearest dollar).
Calculate the financed amount (round to nearest dollar).
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.
Calculate the IRR under Scenario A (round to tenth of a percent).
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.
Calculate the IRR under Scenario B (round to tenth of a percent).
Which alternative Scenario A or Scenario B is probably the most desirable?