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You are considering the acquisition of a small office building

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You are considering the acquisition of a small office building. The purchase price is Kshs. 775,000. 75% of the purchase price can be borrowed with a 30-year, 7.5% mortgage payable annually. The expected Net operating income from operations assuming a 5-year holding period are as follows;

 

Year	NOI
1	97,707
2	102,983
3	108,497
4	114,258
5	120,273

 

The before tax cash flow from the sale of the property is expected to be Kshs.295,050

Required:

i) Calculate before tax IRR on equity. (15 marks)

ii) Should the property be purchased (4 marks)

iii) What are the alternative to property disposition. (6 marks)