Keeping the property one additional year

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A property could be sold today for $2 million. It has a loan balance of $ 1 million and, if sold, the investor would incur a capital gains tax of $250,000. The investor has determined that if it were sold today, she would earn an IRR of 15% on equity for the past five years. If not sold, the property is expected to produce after tax cash flow of $50,000 over the next year. At the end of the year, the property value is expected to increase to $2.1 million, the loan balance will decrease to $900,000 and the amount of capital gains tax due is expected to increase to $255,000.

What is the incremental internal rate of return for keeping the property one additional year?

Reference no: EM131928450

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