What is the NPV of the best case scenario

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Question - Evaluate the purchase of an existing 1050 unit apartment complex for $15000000, the building is assumed to have a 20 year functional life. Treat the rents as being collected at the end of each year, along with associated variable and fixed costs. Assume rent controls will prohibit the rent from being raised over the life of the building. Assume that the underlying property reverts to the original owners at the end of twenty years, and that you will also be responsible for demolition and clean-up costs, to be incurred at the end of the building's life. Rentals are estimated at 945 units per year. Each unit will be rented for a cumulative monthly amount of $15000 per year. Cost per unit when rented $9000 per year. Fixed costs $2000000 per year for the building, other than the initial investment. Demolition/Clean up $8500000 after-tax. Depreciation is to be straight-line. Assume the project can be financed at 7% (before-tax) using debt. Tax Rate is 35%. Having studied market downturns, you estimate that a worst case scenario would entail rental of about 70% of the apartments at 70% of the normal rent. Also estimate a maximum value for the project assuming the building can maintain a rental rate of 98%, at a 9% premium over the currently planned rent. Assume before tax required return at 7%. What is the NPV of the best case scenario?

Reference no: EM132902513

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