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In Year 2020, a real estate analyst from the Dubai Land Real Estate - Mr Sultan Al Hamra - forecasts that a rental apartment building
In Year 2020, a real estate analyst from the Dubai Land Real Estate - Mr Sultan Al Hamra - forecasts that a rental apartment building in in a luxury area called Al Barrari will generate $6 million each year in rent over the next 6 years. The time period considered is from 2021 to 2026 inclusively. You are interested in investing the money you have inherited from your grandmother into this building. After doing your research in the real estate market, you expect cash expenses for the building to reach about $2 million a year. Your cousin Ahmed is interested in buying the building for $18 million at the end of this 6-year period. Usually, the real estate investors usually require a[n) 12% return on their investments for the similar buildings in the area. Apply the relevant present value techniques to value the building in Year 2020. (4.5 points) a. b. Calculate the ROI measure in Year 2020 and explain what this ratio measures. Discuss why the real estate investors are usually very interested in this ratio. (1.5 points) Using your answer in Part (b), justify whether the building you would like to buy is currently a good investment opportunity. (1.5 points)
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