Chapter 8, Problem 5P

You have purchased a property for $950,000 and expect its value to grow at 3 percent compounded annually for 10 years. You plan to sell it at that time hoping to capture your value estimate. In addition, the property is expected to provide a monthly cash flow of $4,000. You expect the monthly cash flow to remain constant over time. What is the expected annual rate of return on this investment given your expectations about its future cash flows?

You have the opportunity to invest in Gopher Gardens, a residential high-rise real estate property in downtown Minneapolis. You expect Gopher Gardens to generate $4.5M in rent one year from now and for rent to increase at 8% per year for the following four years. Five years from now, you believe you will be able to sell the property for $30 million. Assume the interest rate is 6% per year.   a)How much should you be willing to pay today for Gopher Gardens? b) If you can buy the property for $43 million, what is the NPV of this opportunity?

An investment pays you $100 at the end of each of the next 3 years. The investment will then pay you $200 at the end of year 4, $300 at the end of year 5, and $500 at the end of year 6. If the rate of interest earned on the investment is 8%, what is the present value of this investment? What is its future value?   How do you solve this with excel?

Mitchell Investments has offered you the following investment opportunity: $7,000 at the end of each year for the first 7 years, plus $6,000 at the end of each year from years 8 through 14, plus $3,000 at the end of each year from years 15 through 21. Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest dollar.   How much would you be willing to pay for this investment if you required a 8 percent rate of return?$   If the payments were received at the beginning of each year, what would you be willing to pay for this investment?$

Mitchell Investments has offered you the following investment opportunity: $7,000 at the end of each year for the first 7 years, plus $5,000 at the end of each year from years 8 through 13, plus $3,000 at the end of each year from years 14 through 25. Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest dollar. How much would you be willing to pay for this investment if you required a 8 percent rate of return?$   If the payments were received at the beginning of each year, what would you be willing to pay for this investment?$

An investment promises to pay $7,000 at the end of each year for the next six years and $3,000 at the end of each year for years 7 through 10. Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest cent. If you require a 15 percent rate of return on an investment of this sort, what is the maximum amount you would pay for this investment?$   Assuming that the payments are received at the beginning of each year, what is the maximum amount you would pay for this investment, given a 15 percent required rate of return?$

An investment promises to pay $6,000 at the end of each year for the next three years and $4,000 at the end of each year for years 4 through 7. Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest cent. If you require a 11 percent rate of return on an investment of this sort, what is the maximum amount you would pay for this investment?$   Assuming that the payments are received at the beginning of each year, what is the maximum amount you would pay for this investment, given a 11 percent required rate of return?$

Mitchell Investments has offered you the following investment opportunity: $8,000 at the end of each year for the first 3 years, plus $7,000 at the end of each year from years 4 through 6, plus $3,000 at the end of each year from years 7 through 19. Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest dollar.   How much would you be willing to pay for this investment if you required a 12 percent rate of return?$   If the payments were received at the beginning of each year, what would you be willing to pay for this investment?$

A real estate property is on the market.  You have estimated it will give you net cash flows of $5353 per month.  You hope to sell it in 7 years for $334380. Your required return is 9.24%, how much should you be willing to pay for the property today?  Answer: