You are looking to purchase a commercial building. The challenge is it is on leased land, and the current land lease expires in 5 years. The property currently has tenants, and you have certain cash flow for the next 5 years, however, there is only a 65% chance the land lease will be renewed. If it is renewed, your current tenant will remain and continue to pay rent. If the land lease is not renewed, the property will be useless. For the next 5 years, you will receive Free Cash Flow of $120,000 per year. If the land lease is renewed in 5 years, you estimate you will receive $150,000 per year in perpetuity from that point on. You require 11.75% return on your capital.

How much would you be willing to pay for the building?

PLEASE ANSWER WITH FULL SOLUTIONS AND EXPLANATIONS!!!