Calculating NPV of Alternatives
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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.
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Solution Summary
This solution explains how to calculate NPV and addresses qualitative factors that go into deciding whether to sell or a rent a complex.
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This does not factor in depreciation or other cost factors for this NPV calculation. Again, ...
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