Grant Investment Ltd have developed an interesting option. The challenge i to buy a rather worn out real estate for £700 000 and let it to start ups. During the first five years the estimated rent is £200 000. During the fifth year the offices in the building are planned to be refurbished at an estimate cost of £300 000. For the first five years of the project the direct cost for cleaning and maintenance is set at £70 000 per year. The contract with the tenants stipulates an increase of rent as from year 6 to year 10 to be £400 000 annually. At the same time the estimated cost for cleaning and maintenance is expected to increase by £50 000 annually. All revenues and cost above are expected to be paid in the end of each year. Grant Investment Ltd have an risk free return available at 5% and given the market
Grant Investment Ltd have developed an interesting option. The challenge i to buy a rather worn out real estate for £700 000 and let it to start ups. During the first five years the estimated rent is £200 000. During the fifth year the offices in the building are planned to be refurbished at an estimate cost of £300 000. For the first five years of the project the direct cost for cleaning and maintenance is set at £70 000 per year. The contract with the tenants stipulates an increase of rent as from year 6 to year 10 to be £400 000 annually. At the same time the estimated cost for cleaning and maintenance is expected to increase by £50 000 annually. All revenues and cost above are expected to be paid in the end of each year. Grant Investment Ltd have an risk free return available at 5% and given the market
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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Transcribed Image Text:Grant Investment Ltd have developed an interesting option. The challenge is
to buy a rather worn out real estate for £700 000 and let it to start ups.
During the first five years the estimated rent is £200 000. During the fifth
year the offices in the building are planned to be refurbished at an estimated
cost of £300 000. For the first five years of the project the direct cost for
cleaning and maintenance is set at £70 000 per year. The contract with the
tenants stipulates an increase of rent as from year 6 to year 10 to be £400
000 annually. At the same time the estimated cost for cleaning and
maintenance is expected to increase by £50 000 annually. All revenues and
cost above are expected to be paid in the end of each year. Grant
Investment Ltd have an risk free return available at 5% and given the market
conditions they like to see a risk premium for this investment at 10%. Would
this be a challenge worth to pursue? Support your answer with proper
calculations.
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