Question
In: Finance
You have decided to invest in a small commercial office building that has one tenant for...
You have decided to invest in a small commercial office building that has one tenant for a price of $200,000. The tenant has a lease that calls for annual rent
payments of $15,000 per year for the next three years. Hint # 1 However, after that leases expires you expect to be able to increase the
rent by 4% per year for the next 7 years. Hint # 2 You plan to sell the building for $325, 000 ten years from now. Hint # 3
- Complete table 1 showing the projected cash flows for this investment, assuming the next lease payment will be made at the end of year one
B. Assuming that you need to earn 11% on this investment, what is the maximum price you would be willing to pay for the building?
- If the current price was $250,000 what rate of return would you earn.
Solutions
Expert Solution
Please see the table below. Please be guided by the second column titled “Linkage” to understand the mathematics. The last row highlighted in yellow is your answer. Figures in parenthesis, if any, mean negative values. All financials are in $. Adjacent cells in blue contain the formula in excel I have used to get the final output. All the three parts have been solved consequentially in the table itself.
jeff jeffy answered 3 months agoRelated Solutions
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