The financial manager at Genesis Company is looking into the purchase of an apartment complex for $550,000. Net after-tax cash flows are expected to be $65,000 for each of the next five years, then drop to $50,000 for four years. Genesis’ required rate of return is 9 percent on projects of this nature. After nine years, Genesis Company expects to sell the property for after-tax proceeds of $300,000. What is the internal rate of return (IRR) and net present value (NPV) on this project? IRR NPV A) 6.66% -$64,170 B) 8.09% -$21,535 C) 13.99% $166,177 D) 7.01% -$53,765
D CFO = -550,000 CF1 = 65,000 F01= 5 CF2 = 50,000 F02 = 3 CF3 = 350,000 F03 = 1 9% CPT NPV
Answer is D…good job… What I don’t get is…why should the second set of CF (50,000) be for 3 years instead of 4 years.
the last 50K is added to the 300K for the final outflow… so it became 350 K
answer D, tricky question though