Question: Please help with the question. thx You own a factory, which is currently not being used. You have a contract with a Construction company to

Please help with the question. thx You own a factory, which isPlease help with the question. thx

You own a factory, which is currently not being used. You have a contract with a Construction company to fit out your factory to make it ready to use. Total cost is $100,000, 50% paid at the start of the first year, and the rest paid on completion, scheduled for the end of Year 1. You then have a contract with a tenant who will pay you an annual rent for access to your factory. Under this contract, they will pay you $15,000 at the end of Year 2. Each year the rental income increases by 5%. The contract involves 10 annual payments, and then terminates. Assume an annual effective interest rate of 6% in your calculations. i. Express the present value (at t=0) of the annual series of rental incomes you receive as a function of an annuity in arrears a[n], with a specific interest rate. Calculate that interest rate and evaluate the expression. ii. Write out an expression for the Net Present Value of this project as at the start of Year 1. Evaluate this expression. Comment on the answer you get. What does it suggest about the viability of the project? iii. Calculate the Accumulated Value of the Project at the end of the final payment (end of Year 11). iv. In ranking the financial return on projects, the net present value and accumulated value will always give the same ranking. Explain the intuition behind this statement. Marks: 5 + 3+1 + 2

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!