A shopping center costing $20,000,000 will have an estimated net annual income of $2,000,000. In...
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Accounting
A shopping center costing $20,000,000 will have an estimated net annual income of $2,000,000. In 10 years it is estimated the center can be sold for $15,000,000.
(a) What is the expected rate of return?
(b) Is it profitable to sell the shopping center in 10 years? Why?
Use the tables below.
n = 1,
| P/F | P/A | A/F | A/P | F/P | F/A | |
| i = 5 % | 0.95238 | 0.9523 | 1.00000 | 1.05000 | 1.0500 | 1.0000 |
| i = 7 % | 0.93458 | 0.9345 | 1.00000 | 1.07000 | 1.0700 | 1.0000 |
| i = 9 % | 0.91743 | 0.9174 | 1.00000 | 1.09000 | 1.0900 | 1.0000 |
| i = 11 % | 0.90090 | 0.9009 | 1.00000 | 1.11000 | 1.1100 | 1.0000 |
n = 10,
| P/F | P/A | A/F | A/P | F/P | F/A | |
| i = 5 % | 0.61391 | 7.7217 | 0.07950 | 0.12950 | 1.6288 | 12.577 |
| i = 7 % | 0.50835 | 7.0235 | 0.07238 | 0.14238 | 1.9671 | 13.816 |
| i = 9 % | 0.42241 | 6.4176 | 0.06582 | 0.15582 | 2.3673 | 15.192 |
| i = 11 % | 0.35218 | 5.8892 | 0.05980 | 0.16980 | 2.8394 | 16.722 |
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