You have been asked to evaluate investment of purchasing a parking lot under the following conditions: - The proposal is for a parking lot costing $4,000,000. The deck has an expected useful life of 15 years and a net salvage value of $625,000 (after tax adjustment). - The tenants have recently signed long-term leases, which leads you to believe that the current rental income of $250,000 per year will remain constant for the first five years, then the rental income will increase by 10% for every five-year interval over the remaining asset life. - The estimated operating expenses, including income taxes, will be $65,000 for the first year and will increase by $6,000 each year thereafter. Considering an annual interest rate of 15%, what is the net present worth (NPW)?

You have been asked to evaluate investment of purchasing a parking lot under the following conditions: - The proposal is for a parking lot costing $4,000,000. The deck has an expected useful life of 15 years and a net salvage value of $625,000 (after tax adjustment). - The tenants have recently signed long-term leases, which leads you to believe that the current rental income of $250,000 per year will remain constant for the first five years, then the rental income will increase by 10% for every five-year interval over the remaining asset life. - The estimated operating expenses, including income taxes, will be $65,000 for the first year and will increase by $6,000 each year thereafter. Considering an annual interest rate of 15%, what is the net present worth (NPW)?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

You have been asked to evaluate investment of purchasing a parking lot under the
following conditions:
- The proposal is for a parking lot costing $4,000,000. The deck has an expected useful life
of 15 years and a net salvage value of $625,000 (after tax adjustment).
- The tenants have recently signed long-term leases, which leads you to believe that the
current rental income of $250,000 per year will remain constant for the first five years,
then the rental income will increase by 10% for every five-year interval over the
remaining asset life.
- The estimated operating expenses, including income taxes, will be $65,000 for the first
year and will increase by $6,000 each year thereafter.
Considering an annual interest rate of 15%, what is the net present worth (NPW)?
0
A = $250k
$65k
$4M
5
A = $275k
G = $6k
S=$625k
A=$302.5k
10
15
Would you accept the investment of the previous question? In other words, is it profitable?

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