Billy is considering the purchase of a rental house.The house costs $240,000 and it will generate annual revenues of $15,000 and annual expenses of $3,000.What is the internal rate of return of this investment?

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is calculated by finding the discount rate that makes the net present value (NPV) of the cash flows from the investment equal to zero. The annual net cash flow is $15,000 - $3,000 = $12,000. The IRR is the rate at which the present value of these cash flows equals the initial investment of $240,000. Solving for IRR gives approximately 5%.

Billy Is Considering the Purchase of a Rental House