Suppose you own a small company that is contemplating construction of a suburban office block. The cost
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Question:
Suppose you own a small company that is contemplating construction of a suburban office block. The cost of buying the land and constructing the building is $775,000. Your company has cash in the bank to finance construction. Your real estate adviser suggests that you rent out the building for two years at $33,750 a year and predicts that at the end of that time you will be able to sell the building for $870,000.
a. Calculate the NPV of the office building venture at interest rates of 5, 10, and 15%
b. At what discount rate (approximately) would the project have a zero NPV? Check your answer by calculating the NPV at your approximate rate; it should be close to zero.
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