You can buy property today for $2.1 million and sell lt in 6 years for $3.1 mill

Question

You can buy property today for $2.1 million and sell lt in 6 years for $3.1 million.(You earn no rental income on the property.) a. If the interest rate is 11%, what is the present value of the sales price? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.) b. Is the property investment attractive to you? O Yes O No c-1. What is the present value of the future cash flows, if you also could earn $110,000 per year rent on the property? The rent is paid at the end of each year. (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

Explanation / Answer

Req a: Sale value of Property: 3100000 PVF at 11% for 6th year 0.53464 Present Value of Sale Value 1657384 Req b: No, property investment is not atractive. As the NPV is negative i.e. (1657384- 2100000) Req c: Sale value property: 3100000 Rental revenue for 6 years 110000 PVF at 11% for 6th year 0.53464 Annuity PVF at 11% for 6 years 4.23054 Present value of Sale value 1657384 Present value of Rentals 465359.4 Total present value of inflows 2122743.4

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