Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 12P
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Question
V1
![A group of private investors borrowed $25 million to build 350 new luxury apartments near a large university
The money was borrowed at 6% annual interest, and the loan is to be repaid in equal annual amounts over
40-year period Annual operating, maintenance, and insurance expenses are estimated to be $3,000 per
apartment. This expense will be incurred even if an apartment is vacant. The rental fee for each apartment will
be $10,000 per year, and the worst-case occupancy rate is projected to be 90%. Investigate the sensitivity of
annual profit (or loss) to (a) changes in the occupancy rate and (b) changes in the annual rental fee
Click the icon to view the interest and annuity table for discrete compounding when the MARR is 6% per
year
Complete the table below (Round to the nearest thousands)
Occupancy Rate $
ww
Rental Fee
$4,000
75%
950
1085](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F74a61ca5-deb8-4406-9829-3b0eceafb404%2F3761ee50-e7d4-4409-b269-ee08788f926b%2F1lnujad_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A group of private investors borrowed $25 million to build 350 new luxury apartments near a large university
The money was borrowed at 6% annual interest, and the loan is to be repaid in equal annual amounts over
40-year period Annual operating, maintenance, and insurance expenses are estimated to be $3,000 per
apartment. This expense will be incurred even if an apartment is vacant. The rental fee for each apartment will
be $10,000 per year, and the worst-case occupancy rate is projected to be 90%. Investigate the sensitivity of
annual profit (or loss) to (a) changes in the occupancy rate and (b) changes in the annual rental fee
Click the icon to view the interest and annuity table for discrete compounding when the MARR is 6% per
year
Complete the table below (Round to the nearest thousands)
Occupancy Rate $
ww
Rental Fee
$4,000
75%
950
1085
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