Kf
Subject:FinancePrice: Bought3
Kf.
An investor has projected three possible scenarios for a project as follows:
Pessimistic-NOl will be $230,000 the first year, and then decrease 2 percent per year over a five-year holding period. The property will sell for $1.92 million after five years.
Most likely-NOIwill be level at $230,000 per year for the next five years (level NO and the property will sell for $2.30 million.
Optimistic NO/ will be $230,000 the first year and increase 3 percent per year over a five-year holding period. The property will then sell for $2.80 million.
The asking price for the property is $2.30 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.
Required:
???Compute the IRR for each scenario.
???Compute the expected IRR.
???Compute the variance and standard deviation of the IRRs.
