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 $250000. The investor has determined that if it were sold today she would earn an IRR of 15% on equity for the past 5 years. If not sold the property is expected to produce after-tax cash flow of $50000 over the next year. at the end of the year the property value is expected to increase to $2.1 million the loan balance would decrease to $900000 and the amount of capital gains tax due is expected to increase to $225000.a. What is the marginal rate of return for keeping the property one additional year?
b. What advice would you give the investor?