Estimate the operating expenses including taxes

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firm is considering purchasing an old office building with an estimated remaining service life of 25 years. Recently, the tenants signed long-term lease, which leads you to believe that the current rental income of $150,000 per year will remain constant for the first 5 years. Then the rental income will increase by 10% for every 5-year interval over the remaining life of the asset. You estimate the operating expenses, including taxes, will be $45,000 for the first year and that they will increase by $3000 each year thereafter. You also estimate that razing the building and selling the lot on which stands will realize a net amount of $50,000 at the end of the 25-year period. If you had the opportunity to invest your money elsewhere and thereby earn interest at the rate 12% per annum, what would be the maximum amount you would be willing to pay for the building and lot at the present time?

Reference no: EM13189456

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