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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 $720,000. Your company has cash in the bank to finance construction. Your real estate adviser suggests hat you rent out the building for two years at $31,000 a year and predicts that at the end of that time you will be able to sell the ouilding for $848,000. Thus there are now two future cash flows-a cash flow of C1=$31,000 at the end of year 1 and a further cash flow of C2=($31,000+ 348,000)=$879,000 at the end of the second year. . Calculate the NPV of the office building venture at interest rates of 6,11 , and 16%. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) o. At what discount rate (approximately) would the project have a zero NPV? Check your answer by calculating the NPV at your approximate rate; it should be close to zero. (Enter your answer as a percent rounded to the nearest whole number.)
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