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Suppose you own a small company that is contemplating construction of a suburban office block. The cost of buying the land and constructing the building
Suppose you own a small company that is contemplating construction of a suburban office block. The cost of buying the land and constructing the building is $740,000. Your company has cash in the bank to finance construction. Your real estate adviser suggests that you rent out the building for two years at $32,000 a year and predicts that at the end of that time you will be able to sell the building for $856,000. Thus there are now two future cash flows--a cash flow of G = $32,000 at the end of year 1 and a further cash flow of C - ($32,000 - 856,000) = $888,000 at the end of the second year. a. Calculate the NPV of the office building venture at interest rates of 7. 12, and 17%. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Answer is not complete. $ 95,918.37 X Net present value at 5% Net present value at 10% Net present value at 15% $ 22,975.21
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