Determine what is maximum price be willing to pay to acquire

Reference no: EM132779053

You are trying to evaluate the economics of purchasing an apartment. You expect the apartment to provide annual after-tax cash benefits of US$6,000 at the end of each year. You intend to sell the apartment at the end of the fifth year of ownership to obtain after-tax proceeds of US$100,000 so you can invest in an apartment building. Assume the funds for purchasing the apartment will be drawn from your savings account which is currently earning 2% after taxes and that inflation rate is currently 5%.

Problem a) Identify the cash flows, their timing and the required rate of return applicable to valuing investing in the apartment?

Problem b) Showing all calculations state if you should purchase the apartment if the seller is selling the apartment for US$200,000, justify your decision? What is the maximum price you would be willing to pay to acquire the apartment.

Reference no: EM132779053

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