You are trying to estimate the value of a building, based upon the rental cash flows. The total rental revenue on the building last year was $ 7 million and it is expected to grow 5% a year for the next 12 years; the operating expenses were $ 2 million and they can be expected to grow 5% a year for the next 12 years, as well. At the end of 12 years, the building has to be sold to the owner of the land (on which the building is built) for $ 100 million. The discount rate on the cash flows, based upon the uncertainty, is estimated to be 10%. (You can ignore taxes)

A- Estimate the price / value you would be prepared to pay for the building today.

B- Now assume that at the end of year 12, the building would not be sold for $ 100 million. Instead, the cash flows are expected to grow at 3% per year forever after that. Estimate the value of the building based upon this assumption.