You are considering the acquisition of a small office building

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;

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)