We purchase a property for 250 Thousand Dollars. We assume that the value V (t) of...

 

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We purchase a property for 250 Thousand Dollars. We assume that the value V (t) of the property (in thousand dollars) is given by V(t) = 250 evt/5 after t years. If we choose to rent out the property, we expect to receive a rent I(t) (in Thousand dollars per year). We consider this as a continuous cash flow, and assume that it is given by I(t) = 10e0.06t after t year. We use continuous discounting when we compute present values, with discount rate r = 10%. (a) Find the present value of the cash flow we would received for renting the property with an infinite time horizon. (b) We consider selling the property at some time in the future. When is the present value of the property value maximal? (c) Assume that we rent out the property for T years, and then sell the property. Write down an expression for the total present value N(T) of the cash flow for renting out and selling the property, and compute N(T) when (i) T=0 (ii) T = 1 At what time does it seem optimal to sell the property? (iii) T = 2 (iv) T = 3 We purchase a property for 250 Thousand Dollars. We assume that the value V (t) of the property (in thousand dollars) is given by V(t) = 250 evt/5 after t years. If we choose to rent out the property, we expect to receive a rent I(t) (in Thousand dollars per year). We consider this as a continuous cash flow, and assume that it is given by I(t) = 10e0.06t after t year. We use continuous discounting when we compute present values, with discount rate r = 10%. (a) Find the present value of the cash flow we would received for renting the property with an infinite time horizon. (b) We consider selling the property at some time in the future. When is the present value of the property value maximal? (c) Assume that we rent out the property for T years, and then sell the property. Write down an expression for the total present value N(T) of the cash flow for renting out and selling the property, and compute N(T) when (i) T=0 (ii) T = 1 At what time does it seem optimal to sell the property? (iii) T = 2 (iv) T = 3

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ANS WER The credit for retirement plan contributions is 520 WORK ING 29 00 ... View the full answer