Find value for the office complex

Reference no: EM1361022

You are considering the purchase of a small office complex that will generate a gross rents of $600,000 per year. Because of long-term leases, rental income is not expected to change over the next 20 years. Next year, expenses will be $200,000. Thereafter, however, expenses are expected to grow with inflation at 4% per year. Investors usually demand a 10 percent (nominal) rate of return on such investments. In 20 years you could sell the apartment complex for $2 million (which includes the effect of 20 years' inflation). Ignore taxes. How much should you be willing to pay today for the office complex?

Reference no: EM1361022

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