Question

Suppose you want to buy an apartment building. The apartment building will generate a rental income of $6,000 at the end of each month for the next 25 years. However, $10,000 has to be incurred each year to maintain the building. The maintenance costs are paid at year-end. Interest rates will remain constant at 10 percent compounded annually.

REQUIRED:

What is the maximum price you should pay for the building?`

Answer 1

Solution

Here we have explained the concept of present value of money using the discounting factor/intrest rate on which basis we calculate the present value of any future Investment/Earning.

We have taken a decision based on present valur concept Nd thus calculating maximum amount that can be paid paid for an apartment building.

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