Determining marginal rate of return for keeping property

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A property could be sold today for $2.5 million. It has a loan balance of $1 million and, if sold, the investor would incur a capital gain tax of $112,500. The investor has determined that if it were sold today, she would earn an IRR of 15 percent on equity for the past ten years. If not sold, the property is expected to produce after-tax cash flow from operations of $50,000 over the next year. At the end of the next year, the property value is expected to increase to $2.65 million, the loan balance will decrease to $900,000, and the amount of capital gains tax due is expected to increase to $135,000. What is the marginal rate of return for keeping the property one additional year?

Reference no: EM132494380

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