An investor is considering to buy a property. It costs $200.000,00 and it will allow him to receive $28.000,00 during the first year (which will decrease $300,00 per year). If he buys this property, he expects to keep it for 10 years and then sell it for $140.000,00.
On the other hand, he owns a property of $150.000,00 which will be shall be sold to buy the former property. This last property gives him $21.000,00 per year for 10 years, when he expects to sell it (if he does not do it now) for $110.000,00.
Given that the minimum attractiveness rate of 8%, is it worthwhile to buy the property?
I am wondering how to represent the cash flow of these two options to compare their IIR, but I'm not quite sure about some details:
1) If he chooses to buy the property, would his initial investiment be $200.000,00 - $150.000,00?
2) The second option (not buying it) has no output of money, he just gets money. So, how do I evaluate the IRR in this case?