Question 1

You are interested in purchasing a residential apartment block as a long-term investment. You have identified two identical apartment blocks in two different cities: City A and City B. The discount rate for an asset with the same level of risk is 6%. City A City B Expected annual growth in net operating income (NOI) Years 210: 5% 4% Terminal growth rate (post-Year 10): 2% 2% Rent income Year 1: 120,000 100,000 Maintenance expense Year 1: 30,000 30,000 Purchase price: 1,600,000 1,400,000 Discount rate: 6% 6% Calculate the net present value of each potential investment. Round your answers to the nearest pound

City A

Year:			0	1	2	3	4	5	6	7	8	9	10
Net operating income
Initial investment (enter as negative)			-1,600,000
Terminal value
Net cash flow			-1,600,000	0	0	0	0	0	0	0	0	0	0

NPV=

City B

Year:			0	1	2	3	4	5	6	7	8	9	10
Net operating income
Initial investment (enter as negative)
Terminal value
Net cash flow			0	0	0	0	0	0	0	0	0	0	0

NPV