Question
You have a building with 8 apartments. The construction cost of the building is $4 million The annual rent for each is $150,000/year. You rent
You have a building with 8 apartments. The construction cost of the building is $4 million The annual rent for each is $150,000/year. You rent the apartments using 7 years' contracts.
a. If all your customers deposit the rental amounts in the bank over the 7 years of their contracts, and that banks reward deposits with 6% annually, what is the amount you will find at maturity?
b. What's the present value of all the contracts?
c. If you want to sell the building with a 25% profit margin applied to the construction cost to which you add the present value of the apartments, what would be the minimum price you would accept to seal the deal?
d. What would be the minimum price you would accept if two apartments are vacant?
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