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# Purchase price of the year

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Consider the following information:

Purchase Price: 750,000 financed 80% at 7% rate of interest for 25 years (amortized monthly)Remaining After-tax Cash Flow from Operations – year 1: \$33,000Remaining After-tax Cash Flow from Operations – year 2: \$22,000Remaining After-tax Cash Flow from Operations – year 3: \$31,000Remaining After-tax Cash Flow from Operations – year 4: \$28,000Remaining After-tax Cash Flow from Operations – year 5: \$26,000Remaining After-tax Cash Flow from Operations – year 6: \$30,000Remaining After-tax Cash Flow from Operations – year 7: \$32,000Calculate the owner’s equity (round to nearest dollar).Calculate the financed amount (round to nearest dollar).

Scenario A:

The investor decides to sell the property at the end of year 4 for \$900,000. Calculate the loan payoff at the point of sale (this is a balloon payment calculation) — round answer to the nearest dollar. Calculate the IRR under Scenario A (round to tenth of a percent).

Scenario B:

The investor decides to sell the property at the end of year 7 for \$1,100,000. Calculate the loan payoff at the point of sale (this is a balloon payment calculation) — round answer to the nearest dollar. Calculate the IRR under Scenario B (round to tenth of a percent).Which alternative Scenario A or Scenario B is probably the most desirable?

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