Question

In: Finance

Potential Gross Income 100,000 sq. ft for the coming year average rent $15.00 per ft. $  ...

Potential Gross Income 100,000 sq. ft for the coming year

average rent $15.00 per ft.

$   1,500,000

Less Vacancy Allowance (average 8%)

$     (120,000)

Effective Gross Income

$   1,380,000

Cleaning expenses (5% of net rev)

$      (69,000)

Insurance ($ 0.02 per dollar replacement, R.C. = $40 per ft.

$      (80,000)

Management & Maintenance (11% of revenue)

$    (151,800)

Reserve for Replacement (savings for major repairs)

$      (50,000)

Property Taxes ($0.10 per $100 of R.C.)

$          (4,000)

$    (354,800)

Estimated Net Operating Income

$   1,025,200

What is the NPV of this investment at a discount rate of 12% ? (use purcahse price of 9,500,00)

Solutions

Expert Solution

NPV of the investment = Present value of estimated Net Operating Income - Purchase price

Present value of estimated net operating income = Estimated net operating income / (1 + Discount rate)

= $1,025,200 / (1 + 12%)

= $1,025,200 / 1.12

= $915,357.143

NPV of the investment = $915,357.143 - $9,500,000

= $(-8,584,642.86)


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