An individual invests 9 3 5 4 1 4 (pounds) to purchase two flats that are going to be rented to provide a monthly rental income to the investor. The first flat costs 608019 and the second flat costs 3 2 7 3 9 5 . Rent is paid to the investor at the start of each month for 10 . The annual eff ective interest rate is 3 . 0 3 % . For the first flat we have: • The initial monthly rental income for the first 12 months is 1 2 1 6 . 0 0 . Each subsequent year, the rent increases at the start of the year at a rate of 7 . 0 0 % p.a. effective, and is then constant for the next 12 months; • Maintenance costs are also paid by the investor from the rental income at the start of each month. The initial amount is 6 7 . 5 6 per month, and is fixed for12 months. Like the rent, it increases at the start of each subsequent year at a rate 0 . 7 0 % p.a. effective. For the second flat we have: • The initial monthly rental income for the first 12 months is 7 5 0 . Each subsequent year, the rent increases at the start of the year by a fixed amount. The total annual increase is 7 5 % , which is divided equally between the number of monthly rental payments. • Maintenance costs are paid at the start of each month. The initial amount is 4 4 . 1 2 per month, and is fixed for 12 months. Like the rent, it increases at the start of each subsequent year. The amount by which it increases is fixed as 9 . 2 9 % of the increase in rent. Taxes on both properties are paid at the start of every month at a rate 1 8 % on the monthly rental income net of maintenance costs (that is, monthly rental income minus the maintenance costs). After 1 0 both properties are sold. Their value has increased at an annualrate of 1 . 9 4 % p.a. and capital gains taxes (CGT) are paid at a rate of 1 8 %on the capital gains. There are three tasks you have to complete: 1) Computing the Net Present Value (NPV) of the cash flow at the given 3 . 0 3 2) Computing the Internal Rate of Return (IRR) for the two parts of the investment project. 3) Compare the investments in the two flats. use excel
An individual invests 9 3 5 4 1 4 (pounds) to purchase two flats that are going to be rented to provide a monthly rental income to the investor. The first flat costs 608019 and the second flat costs 3 2 7 3 9 5 . Rent is paid to the investor at the start of each month for 10 . The annual eff ective interest rate is 3 . 0 3 % . For the first flat we have: • The initial monthly rental income for the first 12 months is 1 2 1 6 . 0 0 . Each subsequent year, the rent increases at the start of the year at a rate of 7 . 0 0 % p.a. effective, and is then constant for the next 12 months; • Maintenance costs are also paid by the investor from the rental income at the start of each month. The initial amount is 6 7 . 5 6 per month, and is fixed for12 months. Like the rent, it increases at the start of each subsequent year at a rate 0 . 7 0 % p.a. effective. For the second flat we have: • The initial monthly rental income for the first 12 months is 7 5 0 . Each subsequent year, the rent increases at the start of the year by a fixed amount. The total annual increase is 7 5 % , which is divided equally between the number of monthly rental payments. • Maintenance costs are paid at the start of each month. The initial amount is 4 4 . 1 2 per month, and is fixed for 12 months. Like the rent, it increases at the start of each subsequent year. The amount by which it increases is fixed as 9 . 2 9 % of the increase in rent. Taxes on both properties are paid at the start of every month at a rate 1 8 % on the monthly rental income net of maintenance costs (that is, monthly rental income minus the maintenance costs). After 1 0 both properties are sold. Their value has increased at an annualrate of 1 . 9 4 % p.a. and capital gains taxes (CGT) are paid at a rate of 1 8 %on the capital gains. There are three tasks you have to complete: 1) Computing the Net Present Value (NPV) of the cash flow at the given 3 . 0 3 2) Computing the Internal Rate of Return (IRR) for the two parts of the investment project. 3) Compare the investments in the two flats. use excel
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