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 $10.6 million at the end of the fourth year. Q1(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. Q1(b). Assuming your discount rate is 6.5%, 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. Q1(c). 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 $6.1 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.