=+LG 4 P6–12 Valuation fundamentals Imagine that you are trying to evaluate the economics of purchasing a condominium to live in during college rather than renting an apartment. If you buy the condo, during each of the next 4 years you will have to pay property taxes and maintenance expenditures of about $6,000 per year, but you will avoid paying rent of $10,000 per year. When you graduate 4 years from now, you expect to sell the condo for $125,000. If you buy the condo, you will use money you have saved that is currently invested and earning a 4% annual rate of return.

Assume for simplicity that all cash flows (rent, maintenance, etc.) would occur at the end of each year.