You have inherited an apartment complex. You are not sure whether to rent the property or to sell the property. You could receive $65,000 per year for 10 years in rent and then sell the property for $400,000. Or you can sell the property for $300,000 now and payments of $50,000 for the next 15 years. The property has a mortgage of $130,000 that would be due immediately upon the sale; or annual payments of $20,000 would have to be made for 10 years if you rent the property. The cost of capital is 16%.
a. Calculate the NPV for each alternative (ignore taxes).
b. Discuss the qualitative (as opposed to the quantitative) factors that might affect the decision to sell or rent.
This does not factor in depreciation or other cost factors for this NPV calculation. Again, ...
This solution explains how to calculate NPV and addresses qualitative factors that go into deciding whether to sell or a rent a complex.