A property costs $5 million. It will generate positive cash flows for years 1-15. Cash flow in year 1 is $200,000. Cash flows grow by 20% per year. The property is sold for $5,500,000 at the end of year 15. Your firm will only make real estate investments that offer an internal rate of return greater than 15%. In this case your firm should make the investment.

Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
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Chapter11: Capital Budgeting Decisions
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4. A property costs $5 million. It will generate positive cash flows for years 1-15. Cash flow in year 1 is $200,000. Cash flows grow by 20% per year. The property is sold for $5,500,000 at the end of year 15. Your firm will only make real estate investments that offer an internal rate of return greater than 15%.

In this case your firm should make the investment.

 

 

 True or False

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