Question

The expected before-tax IRR on a potential real estate investment is 14 percent. The expected after-tax IRR is 10.5 percent. What is the effective tax rate on this investment?

Answer 1

25%

Step-by-step explanation:

The expected before-tax IRR on a potential real estate investment is 14%

The expected after-tax IRR is 10.15%

Therefore, the effective tax rate on this investment can be calculated as follows

Effective tax rate= 1-(after-tax IRR/before-tax IRR)

Effective tax rate= 1-(10.15/14)

= 1-0.75

= 0.25×100

= 25%

Hence the effective tax rate is 25%