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You are considering purchasing a rental property from your cousin, Billy. You are trying to assess how much you should pay for it. He is
You are considering purchasing a rental property from your cousin, Billy. You are trying to assess how much you should pay for it. He is asking $2 million, and you think this seems high. You have estimated the property will have the following:
Rent: $50,000 paid today;
each year rent will grow by 5%
Sale of building at the end of 10 years (net of fees and taxes): $2.5 million
Your required cost of capital is 8.5%.
Should you pay $2million for this opportunity? What is its NPV if you do?
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