You are considering buying an old warehouse that you will convert into anoffice building for rental. Assuming that you will own the property for 10 years, how much would you be willing to pay for the old house now given the following financial data?I. Remodeling cost at period 0 = $550,000;II. Annual rental income = $800,000;Ill. Annual upkeep costs (including taxes)= $80,000;lV. Estimated net property value (after taxes) at the end of 10 years = $2,225,000;V The time value of your money (interest rate)= 8% per year.(a) $4,445,770(b) $5,033,400(c) $5,311,865(d) $5,812,665
You are considering buying an old warehouse that you will convert into anoffice building for rental. Assuming that you will own the property for 10 years, how much would you be willing to pay for the old house now given the following financial data?I. Remodeling cost at period 0 = $550,000;II. Annual rental income = $800,000;Ill. Annual upkeep costs (including taxes)= $80,000;lV. Estimated net property value (after taxes) at the end of 10 years = $2,225,000;V The time value of your money (interest rate)= 8% per year.(a) $4,445,770(b) $5,033,400(c) $5,311,865(d) $5,812,665
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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You are considering buying an old warehouse that you will convert into an
office building for rental. Assuming that you will own the property for 10 years, how much would you be willing to pay for the old house now given the following financial data?
I. Remodeling cost at period 0 = $550,000;
II. Annual rental income = $800,000;
Ill. Annual upkeep costs (including taxes)= $80,000;
lV. Estimated net property value (after taxes) at the end of 10 years = $2,225,000;
V The time value of your money (interest rate)= 8% per year.
(a) $4,445,770
(b) $5,033,400
(c) $5,311,865
(d) $5,812,665
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