Question
A pension fund purchased an office block nine months ago for $5million .The refurbishment in two months time . A company has agreed to occupy
A pension fund purchased an office block nine months ago for $5million .The refurbishment in two months time . A company has agreed to occupy the office block six months from now .The lease agreement states that the company will rent the office block for fifteen years and will then purchase the property at the end of the fifteen year rental period for 6 million. It is further agreed that rents will be paid quarterly in advance and will be increased every 3 years at the rate of 4% per annum compounded. The initial rent has been set at $800000 per annum with the first rental payment due immediately on the date of occupation . Calculate, as at the date of purchase of the office block, the net present value of the project to the pension fund assuming an effective rate of interest of 8% per annum
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the net present value NPV of the office block project for the pension fund we need to consider the rental payments and the purchase price of the property at the end of the 15year lease pe...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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