An owner-manager firm of rental office buildings has a choice of buying building A or building B with the intent of operating the building for 5 years and then selling it. Building A is in an improving location, so that tlhe expected value is to be 20 percent higher in 5 years, while building B is in a declining neighborhood, with an expected drop in value of 10 percent in 5 years. Other data applicable to these buildings are shown in Table 3-3. What will be the rate of return on each building
An owner-manager firm of rental office buildings has a choice of buying building A or building B with the intent of operating the building for 5 years and then selling it. Building A is in an improving location, so that tlhe expected value is to be 20 percent higher in 5 years, while building B is in a declining neighborhood, with an expected drop in value of 10 percent in 5 years. Other data applicable to these buildings are shown in Table 3-3. What will be the rate of return on each building
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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An owner-manager firm of rental office buildings has a choice of buying building A or building B with the intent of operating the building for 5 years and then selling it. Building A is in an improving location, so that tlhe expected value is to be 20 percent higher in 5 years, while building B is in a declining neighborhood, with an expected drop in value of 10 percent in 5 years. Other data applicable to these buildings are shown in Table 3-3. What will be the rate of return on each building?
Transcribed Image Text:Table 3-3 Economic data for Example 3-12
Building A
Building B
First cost
$800,000
-160,000
$600,000
155,000
Anņual income from rent
Annual operating and
maintenance cost.
-73,000
960,000
50,300
Anticipated selling price
540,000
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