Question #$1$:

You and your business partner identify an apartment building which you can purchase for $$6$ million today.$$

According to your calculations, your annual profit $($after all expenses$)$ will be $$600,000$ received at the end of each of the next four years $($ex: your first $$600,000$ payment will be received at the end of Year $1).$

Finally, having established a track record, you plan on selling the buildings for $$10\mathrm{.}6$ million at the end of the fourth year.

Q$1($a$).$Using a table, lay out the stream of cash flows from this project as shown in class.$$ Clearly indicate the period, the cash inflow $/$ outflow during each period, and the source $($or use$)$ of the cash flow.

Hint: Your table should have at minimum five rows and five columns to be complete.

Q$1($b$).$Assuming your discount rate is $6\mathrm{.}5\%,$ what is the NPV of this project?$$

Show your work by setting up the complete NPV formula, plugging your numbers into the formula, and showing the solution.$$ Do not use Excel$$s NPV function...we$$ll practice that later.

Q$1($c$).$Would this qualify as an acceptable property to invest in$?$ Why or why not?

Explain your reasoning by discussing the part of the NPV Rule for Making Investment Decisions that's relevant to this situation and how it informs your decision.

Q$1($d$).$ You find there is a vacant piece of land next to the apartment building that$$s for sale for $$4$ million.$$ Your business partner suggests you buy and hold the land for four years and sell it to a developer

Assume there are no direct expenses associated with holding the land and that you expect to sell it for $$6\mathrm{.}1$ million four years from today.

Assuming you can only pursue one of the two investments discussed, which project would you undertake?

Option #$1$: The Apartment Building

Option #$2$: The Vacant Land

Explain your reasoning by discussing the part of the NPV Rule for Making Investment Decisions that's relevant to this situation and how it informs your decision.