The owner of a financially distressed property in Texas can dispose of it at a $2 million loss today. If the period of recovery for the project is expected to be three years, with annual before tax carrying costs of $1,000,000, $800,000 and $600,000 respectively, should the property be sold? 

Assume that the market value of the property immediately before the downturn in the Texas market was $10,000,000. Today the market value of the property is estimated to be $8,000,000. In three years, the market value of the property is expected to again be $10,000,000. The appropriate discount rate is 15%. Selling expenses are assumed to be zero. Should the property be sold if the discount rate is now 20%?

Answer rating: 100% (QA)

To determine whether the property should be sold we need to compare the present value of expected ca... View the full answer