1. You are considering buying an apartment building as an investment property. Based on your analysis, the building will produce net cash flows after all expenses of $75,000 per year for 25 years. Assume the cash flows occur at the end of the year. You estimate that you will be able to sell the building for $900,000 at the end of the 25 years. Based on your analysis of the riskiness of the local rentals real estate market, you require a rate of return of 14% to invest in this project.

Based on your estimates, what is the apartment building worth to you, what is its fair value, its intrinsic value? Show all work for full/partial credit.