Immediately after completing your analysis for Question 4, your companys finance director notifies you that the company has increased its required rate of return to 7.5% on all new real estate investments. The finance director states that the increase in the required rate of return stems from the increase in interest rates brought on by the Federal Reserve Banks recent actions to increase interest rates. Using the cash flow data from Question 4, what is your recommendation regarding whether the building should be purchased at the sellers asking price of $8.0 million.

Cash Flow and information from Question 4:

After graduating from the Merage School of Business, you take a job with a real estate investment company specializing purchasing and managing rental property focused on the student housing market. During the first week on the job, you are asked to determine whether an apartment building, with an asking price of $8.0 million (nonnegotiable), is a good investment opportunity for the company. The required rate of return on all your Companys real estate investments is 6.75%. Your market research and financial modeling concludes the following: a. Annual net cash flows (gross rents collected less all expenses) are as follows:

Year 1: $500,000 Year 2: $525,000 Year 3: $550,000 Year 4: $560,000 Year 5: $575,000 Year 6 and thereafter: $580,000 (continued)