Viola is investing in some rental property in Collegeville and is investigating
ID: 1206598 • Letter: V
Question
Viola is investing in some rental property in Collegeville and is investigating her income from the investment. She knows the rental revenue will increase each year, but so will the maintenance expenses. She has been able to generate the data that follows regarding this investment opportunity. Assume that all cash flows occur at the end of each year and that the purchase and sale of this property are not relevant to the study. If Viola’s MARR = 5% per year, what is the FW of Viola’s projected net income? Draw the cash flow diagram. (Show your work)
Year
Revenue
Expenses
1
$4,000
$2,000
2
$4,100
$2,100
3
$4,200
$2,300
4
$4,300
$2,500
5
$4,400
$2,700
6
$4,500
$4,000
7
$4,600
$3,100
8
$4,700
$3,300
9
$4,800
$3,500
10
$4,900
$3,700
$21,102.72
$18,048.05
$19,765.67
$25,155.80
Year
Revenue
Expenses
1
$4,000
$2,000
2
$4,100
$2,100
3
$4,200
$2,300
4
$4,300
$2,500
5
$4,400
$2,700
6
$4,500
$4,000
7
$4,600
$3,100
8
$4,700
$3,300
9
$4,800
$3,500
10
$4,900
$3,700
Explanation / Answer
You need to draw that net income as the difference between Revenue and costs for the 10 years shown. And then plot all 3 in excel - which will give you the cash flow analysis. Further, since this is a cash flow of expected income, we must use the Net Present Value formula in excel - NPV . Accordingly the NPV for this cash flow comes to 12,134 Dollars (using discount rate of 5%), which is a good number Hence we can conclude that this is a good project proposition for Viola.
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