burnsy562000

> 4)
> 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% 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 respective
> internal rate of return (IRR) and net present
> value (NPV) on this project?
>
> A) 13.99%; $166,177.
> B) 7.01%; −$53,765.
> C) 6.66%; −$64,170.
>
> Your answer: C was incorrect. The correct answer
> was B) 7.01%; −$53,765.
> IRR Keystrokes: CF0 = -$550,000; CF1 = $65,000; F1
> = 5; CF2 = $50,000; F2 = 3; CF3 = $350,000; F3 =
> 1.
> NPV Keystrokes: CF0 = -$550,000; CF1 = $65,000; F1
> = 5; CF2 = $50,000; F2 = 3; CF3 = $350,000; F3 =
> 1.
>
> Q: Shouldn’t F2 be 4 instead of 3?

You have 5 cash flows of 65K follwed by 3 cash flows of 50 k. The fourth 50k cashflow comes with the 300k return from the sale of the property for a last cash flow of 350K