An investor purchased an office block six months ago for £4.5 million. The investor will spend a further £850,000 on refurbishments in three months' time. A company has agreed to occupy the office block six months from now. The lease agreement states that the company will rent the office block for fifteen years and will then purchase the property at the end of the fifteen-year rental period for £5.5 million. It is further agreed that rents will be paid monthly in advance and will be increased every three years at the rate of 3% per annum compound. The initial rent has been set at £700,000 per annum with the first rental payment due immediately following the date of occupation. Assuming an effective rate of interest of 9% per annum, calculate the investor's expected net proceeds from the project valued at the time of purchase. Assume further that the investor does not pay tax. (Using formulas, no tables) answer: PV= 2,330,108
An investor purchased an office block six months ago for £4.5 million. The investor will spend a further £850,000 on refurbishments in three months' time.
A company has agreed to occupy the office block six months from now. The lease agreement states that the company will rent the office block for fifteen years and will then purchase the property at the end of the fifteen-year rental period for £5.5 million. It is further agreed that rents will be paid monthly in advance and will be increased every three years at the rate of 3% per annum compound. The initial rent has been set at £700,000 per annum with the first rental payment due immediately following the date of occupation.
Assuming an effective rate of interest of 9% per annum, calculate the investor's expected net proceeds from the project valued at the time of purchase. Assume further that the investor does not pay tax.
(Using formulas, no tables)
answer: PV= 2,330,108
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