Problem 5-61 (algorithmic) Question Help A group of private investors borrowed $

Question

Problem 5-61 (algorithmic) Question Help A group of private investors borrowed $31 million to build 300 new luxury apartm ents near a large university. The money was borrowed at 5% annualinteres and he loan is to be repaid in equal annual amounts (principal and interest) over a 40-year period. Annual operating, maintenance, and insurance expenses are estimated to be $3,500 per apartment, and these expenses are incurred independently of the occupancy rate for the apartments. The rental fee for each apartment will be $11,000 per year, and the worst-case occupancy rate is projected to be 70% a. How much profit (or loss) will the investors make each year with 70% occupancy? b. Repeat Part (a) when the occupancy rate is 95% Click the icon to view the interest and annuity table for discrete compounding when the MARR is 5% per year.

Explanation / Answer

We will find the annual repayment amount using follwoing formula

Present value of annuity = annual amount * ( 1- (1+r)^(-n))/r

31,000,000 = annual amount * (1 - (1.05)^(-40))/.05

annual amount = $1806623

Annual Expense on operation = $3500 * 300 = $1050000

Ans a) At 70% occupancy revenue will be = $2310000

Loss will be = $1806623 + $1050000 - $2310000

= $546623

Ans b) At 95% occupancy revenue will be = 3135000

Profit will be = $3135000 - $1806623 - 1050000

= $278377

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