The following set of NOl is generated by a property that was held for exactly 4years: Year NOI$50,000S55,000 The property was purchased for S600,000 and sold at the end of Year 4 forS780,297.50.The lRR is 15%.ldentify the part of IRR that is attributable to the growth in NOI (ANOlRR) and netcapital appreciation (NetGRR). O a. ANOIIRR = 0.26%,NetGIRR = 3.25% O b. ANOIIRR = 0.15%, NetGIRR = 3.47% O c. ANOIIRR = 0.28%,NetGiRR = 2.58% O d. ANOIIRR = 0.45%, NetGIRR = 2.14% O e. ANOlRR = 0.33%, NetGIRR = 2.50%
Question
The following set of NOl is generated by a property that was held for exactly 4years: Year
NOI$50,000S55,000 The property was purchased for S600,000 and sold at the end of Year 4 forS780,297.50.The lRR is 15%.ldentify the part of IRR that is attributable to the growth in NOI (ANOlRR) and netcapital appreciation (NetGRR). O a. ANOIIRR = 0.26%,NetGIRR = 3.25% O b. ANOIIRR = 0.15%, NetGIRR = 3.47% O c. ANOIIRR = 0.28%,NetGiRR = 2.58% O d. ANOIIRR = 0.45%, NetGIRR = 2.14% O e. ANOlRR = 0.33%, NetGIRR = 2.50%
Solution
To solve this problem, we need to calculate the ANOIIRR and NetGIRR separately.
- ANOIIRR (Annual Net Operating Income Internal Rate of Return): This is the growth rate that makes the present value of the future NOI equal to the initial NOI.
The NOI grew from 55,000 in 4 years. So, the growth rate is (55,000/50,000)^(1/4) - 1 = 0.0241 or 2.41%.
- NetGIRR (Net Gain Internal Rate of Return): This is the growth rate that makes the present value of the future selling price equal to the purchase price.
The property was bought for 780,297.50 in 4 years. So, the growth rate is (780,297.50/600,000)^(1/4) - 1 = 0.0681 or 6.81%.
However, the total IRR is given as 15%. The part of the IRR attributable to the NOI growth and net capital appreciation can be calculated as follows:
ANOIIRR = (2.41/15) * 100 = 16.07% NetGIRR = (6.81/15) * 100 = 45.4%
The remaining percentage (38.53%) is the part of the IRR attributable to other factors not specified in the problem.
None of the options provided match these calculations. Please check the problem statement or the options again.
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