Question
The monthly income from a piece of commercial property is $1,200. Annual expenses are $3,000 for upkeep of the property and $1,000 for property taxes.
The monthly income from a piece of commercial property is $1,200. Annual expenses are $3,000 for upkeep of the property and $1,000 for property taxes. The property is surrounded by a security fence that cost $4,000 to install four years ago
a. If i = 12% per year (the MARR) is an acceptable interest rate, how much could you afford to pay now for this property if it is estimated to have a resale value of $150,000 10 years from now?
b. Draw a cash-flow diagram for this situation. Use the viewpoint of the buyer.
c. Based on this situation, give an example of an opportunity cost.
d. Based on this situation, give an example of a fixed cost.
e. Based on this situation, give an example of a sunk cost.
f. If the 12% interest had been a nominal interest rate, what would the corresponding effective annual interest rate have been with bi-weekly (every two weeks) compounding?
Please solve showing Excel formulas if possible.
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