- CFA Exams
- CFA Level I Exam
- Study Session 15. Alternative Investments
- Reading 39. Private Real Estate Investments
- Subject 4. The income valuation approach

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**CFA Practice Question**

An investor is considering building a small office park that she plans to hold for five years before selling. The investor's initial outlay of $250,000 would yield after-tax cash flows in years one through five of $35,000, $38,000, $42,000, $48,000, and $54,000, respectively. It is anticipated that the office park will be sold at the end of the fifth year for net after-tax proceeds of $275,000. If the investor has a required rate of return of 16%, the net present value of this real estate investment would be closest to:

A. -$14,773.

B. $18,471

C. $27,899

**Explanation:**The net present value would be computed as:

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**User Contributed Comments**
2

User |
Comment |
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Bibhu |
The way to calculate in the BA II plus as follows. 1. CF 2. 2nd + clear work. 3.250000 +/- Enter ( CF0= -250000) 4. C01= 35000, F01=1 C02= 38000, F02 =1 C03= 42000, F03 =1 C04= 48000, F04 =1 C05= 54000+27500 F05=1 5.CPT + NPV 6. I =16 7.down arrow 8. CPT NPV = 18471 |

kellyyang |
Saving time ! |