Question

2) You are considering a property that is leased for 15 years. As the lessor you would receive $25,000 per year. At the end of the period you will receive a lump sum payment of $87,500 and the property reverts to the lessee. At an interest rate of 5%, what is the present value of the investment?

Answer 1

Cash flow discounted cash flows YEAR pv@ 5% $25,000.00 $25,000.00 $25,000.00 $25,000.00 $25,000.00 $25,000.00 $25,000.00 $25,000.00 $25,000.00 $25,000.00 $23,809.52 1 0.9524 $22,675.74 $21,595.94 2 0.9070 0.8638 $20,567.56 $19,588.15 0.8227 4 5 0.7835 $18,655.38 6 0.7462 $17,767.03 7 0.7107 $16,920.98 0.6768 $16,115.22 0.6446 $15,347.83 10 0.6139 $25,000.00 $25,000.00 $25,000.00 $14,616.98 11 0.584 $13,920.94 12 0.5568 $13,258.03 13 0.5303 $25,000.00 $12,626.70 14 0.5051 $112,500.00 $54,114.42 15 0.4810 $301,580.45 Present value of investment