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You buy an apartment for investment in a very good area so you know this will...

You buy an apartment for investment in a very good area so you know this will be most of the time with tenants. The monthly rent you charge to the tenants is $5,000. You set in the contract a rate of increase in the rent of 5% per year. What should be the price of the department today? Use a 10% annual discount rate.

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Answer #1

The price of the department today is computed as follows:

= ( Annual rental x increase in rent each year ) / ( discount rate - rental increase each year )

= ( $ 5,000 x 12 x 1.05 ) / ( 0.10 - 0.05 )

= $ 1,260,000

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