You have the opportunity to purchase an office building. You have a tenant lined up that will generate $25,000 per year in cash flows for three years. At the end of three years, you anticipate selling the building for $450,000. Assume a 7% opportunity cost of capital.

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

2. If the building is being offered for sale at a price of $375,000, would you buy the building?

3. What is the added value generated by your purchase and management of the building?