Question

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

Answer 1