5. Lausanne Properties (LP) is considering an investment in a leasehold property. After 10 years, the ownership will automatically transfer to the seller. However, the property could be offered as a parking lot to the adjoining hotel which will annually pay $ 100,000 at the end of the first 5 years and annually $ 110,000 for the five years after. LP expects to earn an annual return of 10% on this investment. How much should they pay for the property today? Will the value increase or decrease if LP lowers their return expectations?

Answer rating: 100% (QA)

To determine how much Lausanne Properties LP should pay for the leasehold property today we can calc... View the full answer