Armor Investment Company is considering the acquisition of a heavily depreciated building on 10 acres of land. It expects to rent the building as a storage facility and expects to collect cash flows equal to $100,000 next year. However, because depreciation is expected to increase, Armor expects cash flows to decline at a rate of 4 percent per yearindefinitely. Armor expects to earn anIRRon investment return (r) at 13 percent.

Required: a. What is the value of this property? b. Assume that after five years the building could be demolished and the land could be redeveloped with a strip retail improvement. The latter would produceNOIof $200,000 per year, grow at 3 percent per year, and cost $1 million to build. Investors currently earn a 10 percentIRRon such investments. What is the profit to be earned?