Question

1. Rafael Sandino is interested in investing in a shopping center that has been in operation for 10 years. The forecasted cash flows for the next 5 years are as follows: losses of $4,000 monthly for the first year, gains of $75,000 monthly for the next year, $80,000 monthly for the following 2 years, and $100,000 monthly for the fifth year. In the final month of the 5th year, Rafael is planning to sell the property for $2,500,000. What is a reasonable asking price for this shopping center? Find the net present value (NPV). Assume money is worth 2.8% compounded monthly. Round to the nearest thousand.

2. You purchased 100 shares of corporate stock 9 years ago for $12.65 per share, plus brokerage fees of $85. You received dividends of 35 cents per share at the end of each quarter. Immediately after receiving your 36th dividend, you sold your stock for $11.18 per share, less brokerage fees of $70. Calculate your rate of return. Round to the nearest tenth of a percent.

Answer 1

Solution:-

Year	Cash Flow in $
0
1	-4000*12= -48,000
2	75000*12= 900,000
3	80000*12=960,000
4	80000*12=960,000
5	100000*12=1200,000

5

2,500,000

Using Financial calculator rate of interest is 39.29% compounded yearly

Reasonable asking price for this shopping center is the present value of all the cash flows So NPV is $1,745,348.49

2 Amount Invested =12.65*100 +85 =$1350

Dividend received =12.65*35%=4.43*100=443 Total Dividend recived =443*36 =$15948

Shares selling price= 11.18*100 -$70=$1048

Loss on sale of shares= $(1350-1048)= $302

Total return =$15948-302 = $15646

Rate of return = Total Return / Original price] x 100

=15646/1350*100 = 1159%