Problem $10-5$

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 $$103,000$ 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 IRR on

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 produce NOI of $$206,000$ per year, grow at $3$ percent per year, and cost $$1$ million to build.

Investors currently earn a $10$ percent IRR on such investments. What is the profit to be earned?

Complete this question by entering your answers in the tabs below.

What is the value of this property?

Note: Do not round intermediate calculations. Round your final answer to the nearest whole dollar.