Question
A newly-built business property, containing space for a store and two offices, can be purchased for P1,500,000. A prospective buyer estimates that during the next
A newly-built business property, containing space for a store and two offices, can be purchased for P1,500,000. A prospective buyer estimates that during the next 12 years he can obtain annual rentals of at least P568,000 from the property and that the annual out-of-pocket disbursements will not exceed P75,000. He believes that he should be able to dispose of the property at the end of 12 years at not less than P800, 000. Annual taxes and insurance will total 3.5% of the first cost.
Assume he has sufficient equity capital to purchase the property, and that the average return he is obtaining from his capital is 20% using sinking fund method. What is the RoR (in %) of the investment?
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