What would be the expected sale price of property at the end

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An investment company is considering the purchase of an office property. After a careful review of the market and the leases that are in place, the company believes that next year's cash flow will be $100,000. It also believes that the cash flow will rise in the amount of $5,000 each year for 10 years and then grow at 2% per year indefinitely. The investment company believes that it should earn an IRR (required rate of return) of 12%.

Problem 1: Based on a review of sales of properties that are now 10 years older than the subject property, the investment company has determined that cap rates are in a range of 0.10. What would be the expected sale price of this property at the end of year 10 if the terminal cap rate is estimated from the sales of old "Comparable" properties?

Reference no: EM132841246

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