Question

Assume the following expected annual cash flows from operating a retail property investment: Year 1 =...

Assume the following expected annual cash flows from operating a retail property

investment: Year 1 = $500,000; Year 2 = $525,000; Year 3 = $550,000; Year 4 = $575,000; Year 5 = $600,000. If the net proceeds from the sale in Year 5 are $6.75 million determine the maximum price an investor is willing to pay for the property today if she requires a 12 percent return on her investments?

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Answer #1
year cash flows pv factor @ 12% present value of cash flows
1 500,000 0.8928 446,400
2 525,000 0.7971 418,477.5
3 550,000 0.7117 391,435
4 575,000 0.6355 365,412.5
5 600,000 0.5674 340,440
5 6,750,000 0.5674 3,829,950
present value of project 5,792,115

the maximum price an investor have to pay for the property today if she requires a 12 percent return on her investments = $5,792,115

the student should note that, the PV factors are subject to four decimals.answer may slightly vary if take three decimals...if u face any issue let me know, thank you.

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