Question

Question 7 10 pts You own a small office building where tenants have requested some energy efficient improvements that would cost $120,000. This renovation would result in an increase in PGI of $4,000 per year, a decrease in operating expenses of $3,000 per year, and an increase in the net selling price of $ 163,000. You expect to hold the property for another four years. At a discount rate of 8%, does this investment make sense? no, NPV = ($2,340) eyes, NPV = $4,850 yes, NPV = $13,520 yes, NPV - $22.995 need more information

Answer 1

Answer:

Option D: Yes , NPV=$22,995

Given

Initial Investment I=120000

Annual PGI=4000

Decrease in operating Income =3000

Annual benefit B=4000+3000=7000

Increase in net selling price N=163000

Number of years n=4

rate r=8%

So

NPV=B*(1-(1+r)^-n)/r + N/(11+r)^n -I

NPV=7000*(1-(1+8%)^-4)/8% + 163000/(1+8%)^4 - 120000=$22,995

Since NPV is greater than ZERO this investment makes sense.