In: Finance
Your Aunt Sarah has quite a bit of money. She’s been offered a share in a partnership that is being set up by a local real estate agent. The partnership will buy an existing building, called the Station Building, for $20 million. The agent is selling 25 shares, for $800,000 each. Aunt Sarah has asked you to do some financial analysis to determine whether this is a fair price for a partnership share in the Station Building.
Here’s what you discover:
Should Aunt Sarah buy a share in this partnership?
The question pertains to the cash flows from investment in a property. We use th present value calculation to determine whether Aunt Sarah should invest in the property or not.
The solution is as follows:
The NPV of the project comes out to be 20,738$. Thus, Aunt sarah should invest in the project as NPV is positive.