Kaimalino Properties (KP) is evaluating six real estate investments. Management plans to buy the properties today and sell them five years from today. The following table summarizes the initial cost and the expected sale price for each property, as well as the appropriate discount rate based on the risk of each venture. (Click on the following icon in order to copy its contents into a spreadsheet.) Project Mountain Ridge Ocean Park Estates Lakeview Seabreeze Green Hills West Ranch Cost Today $3,000,000 15,000,000 9,000,000 6,000,000 3,000,000 9,000,000 Discount Rate 15% 15% 15% 8% 8% 8% Expected Sale Price in Year 5 $18,000,000 75,500,000 50,000,000 35,500,000 10,000,000 46,500,000 KP has a total capital budget of $18,000,000 to invest in properties. a. What is the IRR of each investment? b. What is the NPV of each investment? c. Given its budget of $18,000,000, which properties should KP choose? d. Explain why the profitability index method could not be used if KP's budget were $12,000,000 instead. Which properties should KP choose in this case?

Kaimalino Properties (KP) is evaluating six real estate investments. Management plans to buy the properties today and sell them five years from today. The following table summarizes the initial cost and the expected sale price for each property, as well as the appropriate discount rate based on the risk of each venture. (Click on the following icon in order to copy its contents into a spreadsheet.) Project Mountain Ridge Ocean Park Estates Lakeview Seabreeze Green Hills West Ranch Cost Today $3,000,000 15,000,000 9,000,000 6,000,000 3,000,000 9,000,000 Discount Rate 15% 15% 15% 8% 8% 8% Expected Sale Price in Year 5 $18,000,000 75,500,000 50,000,000 35,500,000 10,000,000 46,500,000 KP has a total capital budget of $18,000,000 to invest in properties. a. What is the IRR of each investment? b. What is the NPV of each investment? c. Given its budget of $18,000,000, which properties should KP choose? d. Explain why the profitability index method could not be used if KP's budget were $12,000,000 instead. Which properties should KP choose in this case?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 9PB: Joliet Company is considering two alternative investments. The company requires an 18% return from...

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