You are considering the purchase of a parking deck close to your office building. The parking...

You are considering the purchase of a parking deck close to your office building. The parking deck is a 15-year old structure with an estimated remaining service life of 25 years. The tenants have recently signed long-term leases, which leads you to believe that the current rental income of $250,000 per year will remain constant for the first five years. Then the rental income will increase by 10% for every five-year interval over the remaining asset life. Thus, the annual rental income would be $275,000 for years 6 through 10, $302,500 for years 11 through 15, $332,750 for years 16 through 20, and $366,025 for years 21 through 25. You estimate that operating expenses, including income taxes, will be $71,000 for the first year and that they will increase by $4,000 each year thereafter. You estimate that razing the building and selling the lot on which it stands will realize a net amount of $180,000 at the end of the 25-year period. If you had the opportunity to invest your money elsewhere and thereby earn interest at the rate of 14% per annum, what would be the maximum amount you would be willing to pay for the parking deck and lot at the present time?

when i=14% per year.

The maximum amount you would be willing to pay for the parking deck and lot at the present time is

$122965 is wrong answer

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Rahul Sunny answered 1 year ago

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