a)How much should you be willing to pay today for Gopher Gardens? b) If you can buy the property for $43 million, what is the NPV of this opportunity?
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You have the opportunity to invest in Gopher Gardens, a residential high-rise real estate property in downtown Minneapolis. You expect Gopher Gardens to generate $4.5M in rent one year from now and for rent to increase at 8% per year for the following four years. Five years from now, you believe you will be able to sell the property for $30 million. Assume the interest rate is 6% per year.
a)How much should you be willing to pay today for Gopher Gardens?
b) If you can buy the property for $43 million, what is the NPV of this opportunity?
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