You have an opportunity to purchase rental real estate. Your required return on your investment is 12%. Also, each propertys rent growth should be 2% a year to reflect you expectations for inflation. You are considering two different properties listed below: Texas Tech Villages The initial investment in the property is $650,000. You have done your research and have forecasted a net monthly rental income of $ 5,500 per month. You intend to hold on to this investment at least five years and at the end of five years and would like to be able to sell the property for 725,000. What is the net present value of this investment? Wreckem Cottages The initial investment in the property is $1,000,000. You expect the net monthly rental income of this property to be of $ 8,000 per month. You intend to hold on to this investment at least seven years and at the end of seven years to sell at $1,200,000. What is the net present value of this investment?

Complete the following Cash Flow chart. Remember any money you invested is entered as (-) cash flow is (+). Also, add the sales proceeds plus rental cash flows in the seventh year. Year Texas Tech Villages Wreckem Cottages 0 1 2 3 4 5 6 7 NPV =