Question

A group of private investors borrowed $30 million build 300 new apartments near a

college. The money was borrowed at 6% annual interest, and the loan is to be repaid in equal

annual amounts over a 40-year period. Annual operating, maintenance, and insurance expenses are estimated to be $4,000 per apartment. This expense will be incurred even if an apartment is vacant. The rental fee for each apartment will be $12,000 per year, and the worse case occupancy rate is projected at 80%. Investigate the sensitivity of annual profit (or loss) to changes in the occupancy rate and changes in the annual rental fee

Answer 1