Anjaana Sivakumaran is considering investing $5,000,000 she just earned by selling her Patricia Sou & Bess Wong Limited stocks. At this moment, she is considering the following 2 scenarios: 

1. Invest the money in fixed income securities earning 9% per year compounded monthly. 

2. Purchase an apartment building immediately for $ 5,000,000 and the building will generate rental income. Net rental income from the building will be $400,000 per year for 5 years (the first rental income is received one year from today). Starting from the 6th year until the 10th, the net rental income drops to $200,000 per year due to a long recession. At the end of the 10th year, the building will be sold for $ 7,000,000. Should she buy the building? Use a discount rate of 9% compounded monthly to the cash flows from the building.  

Answer rating: 100% (QA)

To determine whether Anjaana should buy the building we need to compare the present value of cash fl... View the full answer