A few weeks after completing your initial analysis you learn that the city in which the apartment building is located may adopt a building moratorium (curtail new building construction) due to a persistent water shortage brought on by the drought in California. You believe future growth in student enrollment at the nearby university combined with the reduction in available housing supply in the future will allow rent increases in the first four years of ownership higher than originally forecasted. Updating your financial model:

a. Annual net cash flows (gross rents collected less all expenses) are as follows:

Year 1: $575,000

Year 2: $600,000

Year 3: $640,000

Year 4: $650,000

Year 5: $670,000

Year 6 and thereafter: $695,000

Based upon your investment return requirements (building cost has asking price of $8.0 million (nonnegotiable) and required rate of return on all your Companys real estate investments is 6.75%) should you purchase the apartment building (the seller has not adjusted their asking price despite the potential building moratorium)?