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profitability of this investment

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"I bought a one unit apartment (2 bedrooms, 2 baths, kitchen and living room) of the Executive Center for $300,000 with a loan from BOH for 6% per year, payable in equal monthly installments over a 20 year period. I hired also the Best Western Company to manage the unit for a fee of $500 a month. Before I rented the apartment to 4 students at $500 a month each, I spent $100,000 of my own money to renovate, replace the furniture, install wireless connections and new television. " I need your advice whether this is a financially viable investment. Support your recommendation with three financial indicators, (a) net present value of total cost, total revenue and cash flow, (b) the benefit cost ratio and (c) internal rate of return of the proposed investment. (d) your conclusion about the profitability of this investment.

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Solution Summary

The profitability of this investment is assessed.

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Initial investments:
Loan 300,000
Renovation 100,000
400,000

Interest rate 6%
Loan period 20 years

Management fee 500
Expected revenue:
Number of tenants 4
Rental revenue per tenant 500
2,000 ...

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