2. You are considering buying a vacation house as an investment property and want to estimate...
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2. You are considering buying a vacation house as an investment property and want to estimate its value. For simplicity, assume all cash flows occur at the end of each year, with the first cash flow occurring one year from today. Rent revenue is expected to be $14 thousand per year in the first year, growing at 8% per year for 5 years. Maintenance and upkeep will also be growing at 8% per year for 5 years, with $6 thousand of expenses in the first year. After 5 years, both rent revenue and maintenance expense will grow at a constant 3% per year in perpetuity. • You require an annual return of 15% on the investment. What is the present value of this vacation house? 2. You are considering buying a vacation house as an investment property and want to estimate its value. For simplicity, assume all cash flows occur at the end of each year, with the first cash flow occurring one year from today. Rent revenue is expected to be $14 thousand per year in the first year, growing at 8% per year for 5 years. Maintenance and upkeep will also be growing at 8% per year for 5 years, with $6 thousand of expenses in the first year. After 5 years, both rent revenue and maintenance expense will grow at a constant 3% per year in perpetuity. • You require an annual return of 15% on the investment. What is the present value of this vacation house?
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Calculating the Present Value of the Vacation House To determine the present valuewe need to conside... View the full answer
Related Book For
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Posted Date:
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