An investor has an opportunity to buy a commercial property and to sell it after 15 years. Rents from the property will be $24,000 and he expects them to increase at a rate of 3% per year annually. His required rate of return on this investment is 12%. At what price would he be indifferent to buying or not buying the investment? Round off to the nearest $1. Select one: O a. $213,656 O b. $800,000 O c. $171,429 O d. $240,000

An investor has an opportunity to buy a commercial property and to sell it after 15 years. Rents from the property will be $24,000 and he expects them to increase at a rate of 3% per year annually. His required rate of return on this investment is 12%. At what price would he be indifferent to buying or not buying the investment? Round off to the nearest $1. Select one: O a. $213,656 O b. $800,000 O c. $171,429 O d. $240,000

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 9EB: If you invest $15,000 today, how much will you have in (for further instructions on future value in...

See similar textbooks

Similar questions

You are thinking about buying a real estate property. If you buy the property, you think you will sell it for $714663 in 8 years. If your required return on investments of this risk is 10.54%, what is the most that you should be willing to pay for the property? Round to 2 decimal places. Include a dollar sign ($) or percent (%) as appropriate.
A real estate property is on the market. You have estimated it will give you net cash flows of $5353 per month. You hope to sell it in 7 years for $334380. Your required return is 9.24%, how much should you be willing to pay for the property today? Answer:
ll. Subject :- Accounting You are buying an investment property for $375075 today. Through research, you have determined that the value of the property is likely to grow at a rate of 7.92% per year, on average. How long until the value of the property grows to $521968?
You can buy property today for $3.9 million and sell it in 5 years for $4.9 million. (you have no rental income on the property). 1. If the interest rate is 8% what is the present value of the sales price? 2. Is the property investment attractive to you? 3. What is the present value of the future cash flows if you are could earn $290000 per year rent on the property? The rent is paid at the end of each year. 4. Is the property investment attractive to you now?
An investor is considering the purchase of a rental house for $120,000. The house generates monthly rent of $1.150 per month with no expected vacancy, and annual operating expenses are expected to be $4,800. The investor expects to hold the property for five years and then hopes to sell for $150,000.Based on these assumptions, what is the expected overall eturn on this investment? @ 10.22% 10.69% 11.48% @ 12.40%
. You borrow $2mn at an interest rate of 5% per year to purchase a real estate property for the cost of $2.5mn. The borrowing costs are due only at the end of the year. (a) Suppose you sell the property for $2.7mn at the end of the year. What is the return on your equity? (b) Suppose the price of the property declines to $2.3mn after one year. What is the return on your equity? (c) Suppose the interest rate at which you can borrow is 1%. How do your answers change?
You can buy property today for $3.1 million and sell it in 6 years for $4.1 million. (You earn no rental income on the property.) a. If the interest rate is 7%, what is the present value of the sales price? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.) b. Is the property investment attractive to you? yes or no c-1. What is the present value of the future cash flows, if you also could earn $210,000 per year rent on the property? The rent is paid at the end of each year. (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.) c-2. Is the property investment attractive to you now? yes or no
1. Assume that you purchase a property for $2,000,000 and it generates $25,000 per month of rental income and you sell it after 15 years for $3,275,000. What is your yield (monthly rate of return) on this investment?
Jim Nance has been offered an investment that will pay him $860 three years from today. a. If his opportunity cost is 9% compounded annually, what value should he place on this opportunity today? b. What is the most he should pay to purchase this payment today? c. If Jim can purchase this investment for less than the amount calculated in part (a), what does that imply about the rate of return that he will earn on the investment?
You are looking to invest in a real-estate property to rent out that will cost $100,000. The property is expected to produce annual rent cash flows of $9,000 in Year 1, $7,400 in Year 2, and $8,800 in Year 3, at which point you will sell the property for $91,000.00, if your bank quotes you a mortgage rate of 5.25% per year what is the dollar return you can expect on your investment? Additionally, should you buy the property? a. 2,911.06, do not buy the property b. -$787.99 buy the property c. 787.99, buy the property d. -2,911.06, buy the property
Consider an income producing property that according to your assumptions and estimations is currently worth $4M on an unlevered basis when a 7.5% required rate of return is applied. One of the assumptions that you have made when arriving at that estimate is that you will sell the property in 6 years for a CAP of 8%, which translates to $4.4M at that future point in time. a. At what price will you sell the property in 6 years if all your assumptions materialized except that you will sell the property for a CAP of 7% instead of 8%? Show your calculations. b. All other things equal, by how much the situation described in part a affects the current value of the property.
Chris offers you an investmet where if ou investment where if you invest $1,000 today, he'll return you $1,200 in 2 years. What is the annual rate of return of this investment? Choose the closest. a) 10.5% b) 9.0% c) 10.0% d) 9.5%