Purchase of an old office building

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Reference no: EM139112

Q. Your firm is considering the purchase of an old office building with an estimated remaining service life of 25 years. Renters have recently signed long-term leases, which leads you to believe which 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 outstanding asset life. For eg the annual rental income would be $165,000 for year 6 through 10, $181,500 for year 11 through 15, $199,650 for year 16 through 20, and $219,615 for year 21 through 25. You estimate which operating expenses, including income taxes, will be $45,000 for the first year, and will increase
by $3,000 each year thereafter. You estimate which razing the building and selling the lot will realize a net amount of $50,000 at the end of the 25-year period. For a MARR = 12% per year, Illustrate what would be the maximum amount you would pay for the building and lot at the present time?

Reference no: EM139112

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