Question

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 $9,500,000)

Answer 1

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

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

= $1,025,000 / 1.12

= $915,357.143

NPV of the investment = Present value of estimated net operating income - Purchase price

= $915,357.143 - $9,500,000

= $(-8,584,642.86)