Raul Martinas, a professor of languages at Eastern University own a small office building adjacent to the university campus. He acquired the property ten years ago at a total cost of $595,500 that is $72,500 fir the land and $523,000 for the building. He has just received an offer from a realty company that wants to purchase the property; however, the property has been a good source of income over the years, and so Martinas is unsure whether he should keep it or sell it. His alternatives are as follows:

a. Keep the property. Martinas' accountant has kept careful records of the income realized from the property over the past ten years. These records indicate the following annual revenue and expenses:

Perfessor Martinas makes $13,075 morgage payment each year on the property. The morgage will be paid off in eight more years. He has been depreciating the building by the straight-line method, assuming a salvage value of $78,450 for the building, which he still thinks is an appropriate figure. He feels unsure that the building can be rented for another 15 years.He also feels unsure that 15 years from now the land will be worth 3 times what he paid for it.

Rental receipts		$173,000
Less: Building expenses:
Utilities	$25,250
Depreciation of building	17,782
Property taxes and insurance	20,000
Repairs and maintenance	15,200
Custodial help and supplies	61,250	139,482
Net operating income		$33,518

b. Sell the property. A realty company has offered to purchase the property by paying $259,000 immediately and $28,000 per year for the next 15 years. Control of the property will go to the realty company immediately. To sell the property, Professor Martinas would need to pay the morgage off, which could be done by making a lump-sum patment of $134,500.

Required:

Assume that Profesor Martinas requires a 12% rate of return. Compute net present value in favor of (or against) keeping the property using the total-cost approach. (Round discount factor(s) to 3 decimal places and and other intermediate calculations to the nearest dollar amount.)

Net prtsent value

Would you recommend that he keep or sell the property?