Suppose you purchased an income producing property for $95,000 five years ago. In Year 1, you were able to negotiate a lease that paid $10,000 per year at the end of each year. If you are able to sell the property at the end of year 5 for $100,000 (after receiving our final lease payment), what was the internal rate of return (IRR) on this investment?
A) -18.18%
B) 1.03%
C) 9.57%
D) 11.37%

Question

Quizplus · Accepted Answer

IRR is the discount rate that makes the NPV of a project equal to zero. In this case, the NPV is:-95,000 + 10,000/(1+IRR) + 10,000/(1+IRR)^2 + 10,000/(1+IRR)^3 + 10,000/(1+IRR)^4 + 100,000/(1+IRR)^5 = 0Solving for IRR using a financial calculator or spreadsheet, we get IRR = 11.37%.

Suppose You Purchased an Income Producing Property for $95,000 Five