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Assume an industrial building can be purchased for $2,500,000 today. The investment is expected to yield...

Assume an industrial building can be purchased for $2,500,000 today. The investment is expected to yield cash flows of $300,000 a year for the next five years (the cash flows will be received at the end of the year). The building is expected to sell for $2,750,000 at the end of the fifth year. Calculate the internal rate of return (IRR) for this transaction. show work please

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Expert Solution

For solving the question we are going to use the IRR function in Excel:

Syntax of the IRR function in Excel is:

=IRR (values, [guess]), where values - Array or reference to cells that contain values & guess - [optional] An estimate for expected IRR

Total Cashflow in the year 5 would be = Cashflow in Year 5 + Building Selling Value

Total Cashflow in the year 5 would be = $300,000 + $2,750,000 = $3,050,000

For using the IRR function just select the Amount column and drag it from Intital Investment row to Cashflo in Year 5 row you will get the IRR for the transaction.

Internal rate of return (IRR) for this transaction is 13.53% (Rounded to two decimal places else 13.527%)

jeff jeffy answered 2 years ago
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