$$\begin{array} { l r }
\text { After-tax cash flow from aperations if renovated } & \$ 75,000 \
\text { After-tax cash flow from aperations if not renovated } & \underline{- 60,000} \
\text { Incremental cash flow from aperations } & \$ 15,000 \
& \
\text { Sale proceeds if renovated } & \$ 2,500,000 \
\text { Sale proceeds if nat renovated } & \underline{\mathbf { 2 , 2 5 0 , 0 0 0 }} \
\text { Incremental cash flow from sale } & \$ 250,000 \\
\text { Renovation costs }& \$ 250,000
\end{array}$$
-Consider the information in the table above. What is the rate of return the investor would earn on the additional funds invested in renovating the property, assuming that the investor would not borrow any additional funds?

Question

$$\begin{array} { l r } 
\text { After-tax cash flow from aperations if renovated } & \$ 75,000 \
\text { After-tax cash flow from aperations if not renovated } & \underline{- 60,000} \
\text { Incremental cash flow from aperations } & \$ 15,000 \
& \
\text { Sale proceeds if renovated } & \$ 2,500,000 \
\text { Sale proceeds if nat renovated } & \underline{\mathbf { 2 , 2 5 0 , 0 0 0 }} \
\text { Incremental cash flow from sale } & \$ 250,000 \\
 \text { Renovation costs }& \$ 250,000
\end{array}$$
-Consider the information in the table above. What is the rate of return the investor would earn on the additional funds invested in renovating the property, assuming that the investor would not borrow any additional funds?

Quizplus · Accepted Answer

The incremental cash flow from operations is $15,000 and the incremental cash flow from the sale is $250,000. The total incremental cash flow is $265,000. The renovation costs are $250,000. The rate of return is the incremental cash flow divided by the renovation costs, which is 265,000 / 250,000 = 1.06 or 106%.

-Consider the Information in the Table Above