Challenging NPV problem
Real estate investment from past mock exam:
Purchase price: 2.5 milion
Down payment is $500,000, financing at 10%, with 20 annual end of year payments of 234,919 each.
Gross annual rents are 300,000
Depreciation is 60,000 per year
Maintenance and taxes are 35,000 per year.
The building will be sold at the end of 2 years, producing net after tax proceeds of 610,000 after the loan balance is repaid. Millers client, the prospective purchaser, is in the 35% marginal income tax bracket.
The NPV of this project at a 10% discount rate, based on these estimates is closest to:
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