Your firm plans on purchasing an existing rental property with a remaining service life of 30 years. Recently, the tenants signed a 5-year lease, fixing the rental income at $300,000 for the next five years. Rental income is expected to increase by 5% every five years over the remaining life of the property. Based on this increase, the annual rental income would be $315,000 for years 6 through 10, $330,750 for years 11 through 15, $347,288 for years 16 through 20, and $364,652 for years 21 through 25, and $382,884 for years 26 through 30. Operating expenses, including income taxes, are estimated be
$70,000 for the first year increasing by $6,000 each year thereafter. At the end of the property service life, you expect to sell the lot on which it stands for the net amount of $550,000. Alternatively, you could invest in a mutual fund that earns at the rate of 10% per annum, what would be the maximum amount you would be willing to pay for the property at the present time?