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Suppose a condo generates $11,500 in cash flow at the end of the first year. If...

Suppose a condo generates $11,500 in cash flow at the end of the first year. If the cash flows grow at 4% per year, the interest rate is 12%, and the building lasts forever, what is the most you would be willing to pay for the condo?

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Answer #1

PV now = Cash Flow in 1 year / [r - g]

= $11,500 / [0.12 - 0.04] = $11,500 / 0.08 = $143,750

So, the most you would be willing to pay for the condo is $143,750

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