Fred Sanford has invested in real estate considerably by building prefabricated houses that have a useful life of 25 years and he begins to collects rent of ksh 3,600,000 at the end of the first year.
Lamont has offered to buy these real estate investments from Fred at a price ksh 38,000,000.
The interest rate applicable in this case is 15% pa and these rental incomes are subject to an annual growth rate ranging from 4% to 12%.

Required:
Determine the range of growth rate in the rental income within which Fred Sanford would find it beneficial to accept Lamont’s offer.

Answer rating: 100% (QA)

The useful life 25 years The interest rate applicable is 15 The rental cash inflow in the first year is 3600000 The annual rental growth rate is 4 The ... View the full answer