David is interested in a rental apartment that would supply him with $60,000 at the end ofyear 1, $65,000 at the end of year 2, $59,000 at the end of year 3, $63,000 at the end ofyear 4, and $61,000 at the end of year 5. Also, he will sell the apartment for $1m at theend of year 5.• How much should David pay for this investment if he wants to earn 10 percent on hisinvestment?• If the acquisition costs are $800,000, would David buy this apartment?What is IRR?PV ofTime of cash flowCash flowcash flow, 10%14.Total:2.

The amount that David should pay for this investment should be equal to the NPV of all cash flows.…

Answered: David is interested in a rental…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You would like your child who was bom today to be a millionaire eventually. To that end, you deposit $9,000 in an investment account that earns an average annual rate of return of 10.5%. The money in the account will be distributed to your son whenever the total reaches $1,000,000. How old will your son be when he gets the money (rounded to the nearest year)? O 47 years O 48 years O 46 years O 49 years.
Ronald has an investment opportunity that promises to pay him S55,000 in three years. He could arn a 6% annual return investing his money elsewhere. What is the most he would be willing to invest today in this opportunity?
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2. You plan to purchase an office space in Chamblee's Chinatown for $50,000 at the end of year 2021. You estimate that by renting out that office space, you will receive a stream of rental income for the coming eight years at the end of each year as shown in below. After eight years, you estimate that you can still sell the office space for $45,000 at the end of the eighth year. Is this project a good investment if you project that the normal rate of return in this line of business is 12%? How about if the general rate of return is 15% ? 8%? Year 1 $6,000 Year 5 $7,500 Year 2 $6,500 Year 6 $8,500 Year 3 $7,000 Year 7 $8,500 Year 4 $7,500 Year 8 $8,500 3. Based on the information provided in Step 2 above, compute the Internal Rate of Return for the investment. 4. While you were waiting for your first job interview results to come, you spent several dollars to buy a Georgia Educational Lotto and were lucky enough to win a $1 million prize. The prize is to be awarded in 20 annual payments…
On the basis of how long she has until retirement and her comfort with investment risk, Chelsea has decided that she wants to allocate the money in her retirement account as follows: 75% to equities, 20% to fixed income, and 5% to cash. If Chelsea assumes that each asset class earns the low end of the historical average rates of return provided below, what overall rate of return would she expect to earn over the long term? Equities: 8%-12% Fixed Income: 4% - 7% . Cash: 2% - 5% . O 6.90% O 5.60% O 10.65% O 7.75% 4.67%
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