[brandonb232003]

Brandon buys a golf course on January 1, 2008 for $10 million. He borrows

$6 million from a bank at 8% interest fixed with a 20 year amortization on the debt. The other $4 million is his money and he

Puts this as cash or "investment" in the deal.



After all expenses and paying the bank the mortgage each year, he earns the following (cash) on the club's operations:



Year 1 $20,000

Year 2 $336,000

Year 3 $478,000

Year 4 $211,000 ( poor weather)

Year 5 $560,000

Year 6 $660,231



At the end of year 6, on December 31st, he sells the club for $14,000,000. He pays off the bank debt, gets his $4 million back, and keeps the profits from the sale.



What is the IRR on Brandon's $4 million investment?

[RB70]

Brandon buys a golf course on January 1, 2008 for $10 million. He borrows

$6 million from a bank at 8% interest fixed with a 20 year amortization on the debt. The other $4 million is his money and he

puts this as cash or "investment" in the deal.



After all expenses and paying the bank the mortgage each year, he earns the following (cash) on the club's operations:



Year 1 $20,000

Year 2 $336,000

Year 3 $478,000

Year 4 $211,000 ( poor weather)

Year 5 $560,000

Year 6 $660,231



At the end of year 6, on December 31st, he sells the club for $14,000,000. He pays off the bank debt, gets his $4 million back, and keeps the profits from the sale.



What is the IRR on Brandon's $4 million investment?

10.9%