An apartment will generate $12,000 a year for 5 years, after which you expect to sell the property for $100,000. What is the maximum you should pay for the property if your cost of money is 10%??
What will be an ideal response?
This is another valuation problem set as a real estate investment. The maximum price you should pay is the present value of the estimated cash flow and sale price:$12,000(3.791) + $100,000(0.621) = $107,592.?The annual cash flows are insufficient to justify buying the property. (PV = ?; N = 5; I = 10; PMT = 12000, and FV = 100,000. PV = -107582.)
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Fill in the blank(s) with correct word