Question

Suppose that annual income from a rental property is expected to start at $1390 per year...

Suppose that annual income from a rental property is expected to start at $1390 per year and decrease at a uniform amount of $55 each year after the first year for the 16 year expected life of the property. The investment cost is $5200 and i is %10 per year. What is the present equivalent of the rental income? Assume that the investment occurs at time zero (now) and that the annual income is first received at the end of first year.

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Answer #1
Year Cash flows PVF @ 10% Present Values
0 -5200 1 -5200
1 1390 0.909091 1263.636
2 1335 0.826446 1103.306
3 1280 0.751315 961.6829
4 1225 0.683013 836.6915
5 1170 0.620921 726.4779
6 1115 0.564474 629.3884
7 1060 0.513158 543.9476
8 1005 0.466507 468.8399
9 950 0.424098 402.8927
10 895 0.385543 345.0612
11 840 0.350494 294.4149
12 785 0.318631 250.1252
13 730 0.289664 211.455
14 675 0.263331 177.7486
15 620 0.239392 148.4231
16 565 0.217629 122.9605
Net Present worth 3287
Divide: Annnuity at 10% for 16 years 7.8237
Equivalent Present Annual Worth 420
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