Question

Suppose you bought a house for $3,520,000 to make it a nursing home in the future. But you have not committed to the project and will decide in 9 years whether to go forward with it or sell off the house. If real estate values increase annually at 1.5%, how much can you expect to sell the house for in 9 years if you choose not to proceed with the nursing home project?

Include functional formulas utilized in Microsoft® Excel® for your answers presented (in other words - do not simply type answers in the spaces required).

Answer 1

1.5% Periodic growth rate, RATE #of periods to maturity, NPER Priodic deposits, PMT Lumsum deposit today, PV Interest compounding type, TYPE Future Value after 9 years $3,520,000 0 = 0 if compounded at the end of each year; 1 if compounded at the beginning of each year $4,024,732.71 (Ref: NOTE] Therefore, $4024732.71 will be realized if the house is sold after 9 years if it is decided not to proceed with the nursing home project. NOTE: Future Value after 9 years is calculated using EXCEL FUNCTION FV(rate,nper,pmt,pv,type) where rate=1.5%; nper=9; pmt=0; pv=-3520000; type=0; Here, value for pv is negative as it denotes cash inflows; type=0 as interest is compounded at the end of each period only. C D E F G H I J K 1.5% 9 SO 1 Periodic growth rate, RATE 2 # of periods to maturity, NPER 3 Priodic deposits, PMT 4 Lumsum deposit today, PV 5 Interest compounding type, TYPE 6 Future Value after 9 years $3,520,000 0 = 0 if compounded at the end of each year; 1 if compounded at the beginning of each year =FV(B1,B2,B3, B4,B5) [Ref: NOTE]