A few weeks after completing your initial analysis you learn that the city in which the apartment
Question:
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, should you purchase the apartment building (the seller has not adjusted their asking price despite the potential building moratorium)?
Auditing and Assurance services an integrated approach
ISBN: 978-0132575959
14th Edition
Authors: Alvin a. arens, Randal j. elder, Mark s. Beasley