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Armor Investment Company is considering the acquisition of a heavily depreciated building on 1 0 acres of land. It expects to rent the building as

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 year indefinitely. Armor expects to earn an investment return (r) at 13 percent. a. What is the value of this property (Hint: g can be negative)? b. Assume at year 6 the building could be demolished and the land could be redeveloped with a strip retail improvement. It cost $1 million to build and no NOI at year 6. From year 7 it would produce NOI of $200,000 per year, grow at 3 percent per year. Investors currently earn a 10 percent return on such investments. What is the value of this property. List all cash flows from Year 1 to Year 6)?

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