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A Value Approach Chapter 14 Study Question 7 and 17, pg 404 7. If you purchase a parcel of land today for $25,000, and you expect it to appreciate 10 percent per year in value, how much will your land be worth 10 years from now assuming annual compounding? 17. You are considering the purchase of a small income-producing property for $150,000 that is expected to produce the following net cash flows. End of Year Cash Flow 1 $50000 2 $50000 3 $50000 4 $50000

Real Estate Finance and Investments: Chapter 13 Problem 3, part a, pg 457 An investor has projected three possible scenarios for a project as follows: Pessimistic—NOl will be $200,000 the first year, and then decrease 2 percent per year over a five-year holding period. The property will sell for $1.8 million after five years. Most likely—NOI will be level at $200,000 per year for the next five years (level NOI) and the property will sell for $2 million. Optimistic—NOl will be $200,000 the first year and increase 3 percent per year over a five-year holding period. The property will then sell for $2.2 million. The asking price for the property is $2 million. The investor thinks there is about a 30 percent probability for the pessimistic scenario, a 40 percent probability for the most likely scenario, and a 30 percent probability for the optimistic scenario. a. Compute the IRR for each scenario.