Show Your Work 8. Using the discounted cash-flow method to estimate the present value of a real estate investment

Dakota is considering buying a rental property that has been offered for sale for $225,000. Dakota has specified the following objectives, expectations and estimates:

	She desires an after-tax rate of return of 5%.
	After expenses, the property is expected to generate after-tax cash flows of $5,100, $5,100, $5,200, and $5,300 over the next four years, respectively.
	The property is expected to appreciate in value, and she expects to sell it in four years for $275,000 (after expenses).

Given these expectations and objectives, complete the following table to calculate the present value of the property using the discounted cash-flow method and the interest table provided.

Interest factors - Present value of a single amount

Years	4%	5%	6%	7%	8%
1	0.9615	0.9524	0.9434	0.9346	0.9259
2	0.9246	0.9070	0.8900	0.8734	0.8573
3	0.8890	0.8638	0.8396	0.8163	0.7938
4	0.8548	0.8227	0.7921	0.7629	0.7350
5	0.8219	0.7835	0.7473	0.7130	0.6806
6	0.7903	0.7462	0.7050	0.6663	0.6302
7	0.7599	0.7107	0.6651	0.6227	0.5835
8	0.7307	0.6768	0.6274	0.5820	0.5403

Note: Round your answers in the last column to the nearest dollar.

Discounted Cash Flow to Estimate Price
	After-Tax Cash Flow	Present Value of $1 at 5%	Present Value of After-Tax Cash Flow
Year 1	$5,100	_____________	$________________
Year 2	5,100	_____________	________________
Year 3	5,200	_____________	________________
Year 4	5,300	_____________	________________
Sale price of property at the end of Year 4	$275,000	_____________	________________
Present value of property		_____________	$_______________

Assuming no changes in her estimates, if Dakota purchases the property at the asking price of $225,000, she ______ meet her goals. A. Will B. Will Not

Dakota wants to quit while shes ahead so decides to make an offer of $________. A. $225,000 B. $244,578