Case study-capital provider inc

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Reference no: EM133109974

Capital Provider Inc. (CPI) invests $30 million in a real estate project and Developer Inc. (DI) invests $2 million. CPI receives a non-cumulative preferred return of 6% from operating cash flow, after which DI will receive a non-cumulative return of 5%. Once these returns are met, any remaining cash flow is split 50/50. When the property is sold, each party will receive their principal investment from the proceeds. Next, CPI will receive a 12% IRR preference and any remaining cash is split 50/50. Assuming the cash flow shown below, what are the IRRs earned by each party?

Time

Operating CF

Sale CF

Inception

(32,000,000)

 

Year 1

1,000,000

 

Year 2

1,500,000

 

Year 3

1,800,000

 

Year 4

2,500,000

 

Year 5

2,500,000

47,500,000

Group of answer choices

  • DI will earn 14.8% and CPI will earn 12.4%
  • DI will earn 13.2% and CPI will earn 12.0%
  • DI will earn 17.0% and CPI will earn 12.7%
  • DI will earn 18.2% and CPI will earn 13.6%
  • DI will earn 15.3% and CPI will earn 12.0%
  • DI will earn 16.0% and CPI will earn 13.2%

Reference no: EM133109974

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