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You are considering purchasing an apartment building. What is the NPV of this project? Should you purchase this investment?

You are considering purchasing an apartment building. Once you renovate the apartment building you will rent the apartments. You plan to keep the building for 7 years and then sell it at the end of year 7 for the estimated fare market value.

Purchase Price $10,000,000
Renovation Costs $2,500,000
Year 1 MACRS Depreciation Rate 1.3%
Years 2 - 7 MACRS Depreciation Rate 2.6% each year
Tax Rate 40%
Expected Market Value at the end of year 7 $21,400,000
First Year Rental Gross Income $1,500,000
Expected annual increase in gross income 9%
First year operating expenses, excluding depreciation $650,000
Expected annual increase in operating expenses 7%
Cost of Capital 13%

What is the NPV of this project? Should I make this investment?

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I have assumed that the renovation cost can be depreciated. I ...

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